Russian Oil Wins If Embargo Hits Iran

Excerpt from an article in The New York Times
Friday, February 17, 2012

Russian Oil Industry Set to Capitalize if Embargo Hits Iran 

By ANDREW E. KRAMER

MOSCOW — For months, the Russian government has opposed the idea of Western petroleum sanctions against Iran. But new threats to Iranian oil flow could have at least one beneficiary: Russia.

The Russian oil industry was already reaping the rewards of higher global oil prices from Iranian tensions, even before Tehran raised the stakes Wednesday by threatening to cut off oil to six European nations.

Now, whether Iran carries out that threat immediately or Europe proceeds with its previously planned embargo of Iranian oil this summer, the Russian industry could capitalize more directly. Its pipelines stand ready to serve customers willing to pay a premium price — with a grade of oil closely resembling Iran’s.

“It’s pretty good for Russia right now,” Jesse Mercer, a senior oil analyst based in Houston with PFC Energy, said in a telephone interview.

Russia is now the world’s largest oil producer, pumping about 10 million barrels of oil a day, slightly more than Saudi Arabia. Of this, Russia exports seven million barrels a day. Most of it goes to customers in Europe and Asia, although small amounts from Siberia make it as far as the West Coast of the United States.

For Russian oil companies like Rosneft and Lukoil and the Russian-British joint venture TNK-BP, the international tensions that began over Iran’s nuclear development program last autumn have meant a windfall. Analysts estimate that Iran jitters have added $5 to $15 a barrel to the global price of oil, which means an extra $35 million to $105 million a day for the Russian industry. And the taxes the Russian government has received from those sales have been a political windfall for Prime Minister Vladimir V. Putin as he campaigns to return as Russia’s president. The extra money has helped further subsidize domestic energy consumption, tamping down inflation.