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 supply disruption.
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 sanctions.
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 and euro.
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.
nytimes.com
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 supply disruption.
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 sanctions.
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 and euro.
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.
nytimes.com
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