South Africa cut back enough on its Iranian oil imports this year to get a six-month reprieve from US sanctions this week. But it will have to cut back a lot more on its imports over these six months to avoid the US sanctions kicking in next year.
The Department of Energy confirmed yesterday that the US had given South Africa a 180-day exception to the sanctions on banks and other financial institutions that are due to start at the end of this month.
The sanctions would have barred any South African bank or other financial institutions that continued to do oil business with Iran from the entire US financial system.
The department said the 180-day exception to the US sanctions was “potentially renewable, provided there has been a significant reduction of the crude oil from Iran during the period of the exception”.
US Secretary of State Hillary Clinton had said in a statement on Tuesday that South Africa was one of seven countries that had been exempted from the sanctions because the nation had “significantly reduced” imports of Iranian oil this year.
Brian Denver, the spokesman for the US embassy in Pretoria, said yesterday that Clinton “has made the determination that South Africa has significantly reduced its volume of purchases of Iranian crude oil, and its importers intend to continue to reduce the volume of purchases of Iranian crude oil”.
Industry sources said that the import cuts over the next six months would probably be more difficult as the overall reductions so far had been greatly helped by those oil companies, like Sasol, that had decided to stop Iranian oil imports completely.
Over the next six months the remaining oil companies that depend more than others on Iranian oil, will probably struggle to reduce their dependency. Some have refineries that are technically adapted for Iranian oil.
They are likely to incur extra costs in altering their refineries while all companies are expected to pay more for oil from other sources as Iranian oil is selling at a discount precisely because of the sanctions.
However, industry sources said the general drop in the oil price had helped local oil firms deal with the effects of the US sanctions.
Oil prices fell for a fourth day in New York after Clinton’s announcement on speculation that the US exemptions will limit the risk of global supply disruptions.
Denver said: “We have seen that sanctions on Iran’s central bank and oil sector are having an effect. According to the International Energy Agency, Iran’s crude oil exports in 2011 were about 2.5 million barrels a day, and have dropped to roughly 1.2 million to 1.8 million barrels a day.
“We will also continue to monitor closely developments in the oil market, including supply, demand, inventories, and spare capacity, to assure that the market can continue to accommodate a reduction in purchases from Iran.”
Neither the South African nor the US governments would say yesterday to what extent local imports of Iranian oil had dropped this year or by exactly how much South Africa was expected to cut them over the next months.
Deputy President Kgalema Motlanthe merely told Parliament that South Africa would cut its oil imports from Iran to “acceptable levels” to comply with the sanctions.
International Relations and Co-operation Minister Maite Nkoana-Mashabane recently stated that even before the Iranian oil sanctions came in, South Africa had been engaged in a strategy of diversifying its oil sources away from the Middle East, towards Africa.
The Energy Department said the EU sanctions against Iran due to kick in on July 1 still remained a hurdle. It said the problem was that the EU had banned its insurers from insuring or reinsuring Iranian oil cargoes, which “will make it impossible for importation of crude oil from Iran”.
The government would “continue to engage with the EU about its sanctions”, the department said.