Obama Finds Oil in Markets Is Sufficient to Sideline Iran (NY) TIMES) By ANNIE LOWREY WASHINGTON 03/31/12)
NEW YORK TIMES
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WASHINGTON — After careful analysis of oil prices and months of
negotiations, President Obama on Friday determined that there was
sufficient oil in world markets to allow countries to significantly
reduce their Iranian imports, clearing the way for Washington to
impose severe new sanctions intended to slash Iran’s oil revenue and
press Tehran to abandon its nuclear ambitions.
The White House announcement comes after months of back-channel talks
to prepare the global energy market to cut Iran out — but without
raising the price of oil, which would benefit Iran and harm the
economies of the United States and Europe.
Since the sanctions became law in December, administration officials
have encouraged oil exporters with spare capacity, particularly Saudi
Arabia, to increase their production. They have discussed with
Britain and France releasing their oil reserves in the event of a
And they have conducted a high-level campaign of shuttle diplomacy to
try to persuade other countries, like China, Japan and South Korea,
to buy less oil and demand discounts from Iran, in compliance with
The goal is to sap the Iranian government of oil revenue that might
go to finance the country’s nuclear program. Already, the pending
sanctions have led to a decrease in oil exports and a sharp decline
in the value of the country’s currency, the rial, against the dollar
Administration officials described the Saudis as willing and eager,
at least since talks started last fall, to undercut the Iranians.
One senior official who had met with the Saudi leadership,
said: “There was no resistance. They are more worried about a nuclear
Iran than the Israelis are.”
Still officials said, the administration wanted to be sure that the
Saudis were not talking a bigger game than they could deliver. The
Saudis received a parade of visitors, including some from the Energy
Department, to make the case that they had the technical capacity to
pump out significantly more oil.
But some American officials remain skeptical. That is one reason Mr.
Obama left open the option of reviewing this decision every few
months. “We won’t know what the Saudis can do until we test it, and
we’re about to,” the official said.
Worldwide demand for oil was another critical element of the equation
that led to the White House decision on sanctions. Now, projections
for demand are lower than expected because of the combination of
rising oil prices, the European financial crisis and a modest
slowdown in growth in China.
As one official said, “No one wants to wish for slowdown, but demand
may be the most important factor.”
Nonetheless, the sanctions pose a serious challenge for the United
States. Already, concerns over a confrontation with Iran and the loss
of its oil — Iran was the third-biggest exporter of crude in 2010 —
have driven oil prices up about 20 percent this year.
A gallon of gas currently costs $3.92, on average, up from about
$3.20 a gallon in December. The rising prices have weighed on
economic confidence and cut into household budgets, a concern for an
Obama administration seeking re-election.
On Friday afternoon, oil prices on commodity markets closed at
$103.02 a barrel, up 24 cents for the day.
Moreover, the new sanctions — which effectively force countries to
choose between doing business with the United States and buying oil
from Iran — threaten to fray diplomatic relationships with close
allies that buy some of their crude from Tehran, like South Korea.
But in a conference call with reporters, senior administration
officials said they were confident that they could put the sanctions
in effect without damaging the global economy.
Iran currently exports about 2.2 million barrels of crude oil a day,
according to the economic analysis company IHS Global Insight, and
other oil producers will look to make up much of that capacity, as
countries buy less and less oil from Iran. A number of countries are
producing more petroleum, including the United States itself, which
should help to make up the gap.
Most notably, Saudi Arabia, the world’s single biggest producer, has
promised to pump more oil to bring prices down.
“There is no rational reason why oil prices are continuing to remain
at these high levels,” the Saudi oil minister, Ali Naimi, wrote in an
opinion article in The Financial Times this week. “I hope by speaking
out on the issue that our intentions — and capabilities — are clear,”
he said. “We want to see stronger European growth and realize that
reasonable crude oil prices are key to this.”
By certifying that there is enough supply available, the
administration is also trying to gain some leverage over Iran before
a resumption of negotiations, expected on April 14.
The suggestion that Saudi Arabia is prepared to make up for any lost
Iranian production is intended to remove Iran’s ability to threaten a
major disruption in the world oil supply if it does not cede to
Western and United Nations demands to halt uranium enrichment.
However, administration officials concede that it is unclear how the
oil markets will react to Iranian threats even with the president’s
latest certification that there is sufficient oil to fill the
gap. “We just don’t know how much negotiating advantage we have
gained,” said one senior administration official who has been
involved in developing the policy.
In a statement, Jay Carney, the White House press secretary, said the
administration acknowledged that the oil market had become
increasingly tight, with output just besting demand.
“Nonetheless, there currently appears to be sufficient supply of non-
Iranian oil to permit foreign countries” to cut imports, he said.
American officials have also discussed a coordinated release of oil
from the national strategic reserves with French and British
Some energy experts question whether Saudi Arabia really has enough
spare capacity to make up for the loss of Iran’s oil. But the
determination of the United States and Europe to combat high prices
might be enough to quiet the markets.
The White House “can have a very limited material impact on the size
of supplies,” said David J. Rothkopf, the president of Garten
Rothkopf, a Washington-based consultancy. “But they can have a much
larger impact on perceptions. In this case, it’s not so much the
producers as the energy traders who are moving market prices — and
that’s where the White House wants to play a role.”
Additionally, the White House has the ability under the law to waive
the new sanctions if they threaten national security or if oil prices
spurt, increasing the flow of money to Iran’s government.
Helene Cooper contributed reporting from Burlington, Vt., and David
E. Sanger from Cambridge, Mass.
This article has been revised to reflect the following correction:
Correction: March 30, 2012
An earlier version of this article erroneously included Japan in a
list of European countries exempted from the sanctions against Iran.
(Copyright 2012 The New York Times Company 03/31/12)
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