Oil report may give Obama wiggle room on Iran sanctions

WASHINGTON Tue Feb 28, 2012 2:27pm EST

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WASHINGTON (Reuters) - A U.S. government report on the global oil markets due on Wednesday could help determine how tough the Obama administration will be enforcing sanctions against Iran and provide information it needs to combat rising oil prices.

The Energy Information Administration Wednesday morning will give a snapshot of global petroleum prices and production in countries besides Iran. The report, which the Obama administration pushed for, is required by the National Defense Authorization Act spelling out the Iran sanctions, signed into law two months ago.

President Barack Obama has until March 30 to decide whether the price and supply levels of non-Iranian oil and fuels like gasoline, diesel and jet fuel in global markets are satisfactory to apply sanctions on foreign banks for petroleum transactions. He must renew the decision every 180 days after that.

The sanctions aim to hurt Iran's ability to make an atomic bomb by squeezing revenues from its oil exports. Iran says its nuclear program is geared purely to develop power stations and medical devices.

An EIA source said the document that will be delivered to Congress will be about 30 pages of data and a bit of analysis that looks back at the last 60 days of oil market conditions. It could offer details on how tensions over sanctions are affecting oil markets in big Iranian consumers including China, Japan, and India.

It could also show the extent to which Saudi Arabia can plug any gaps from lost Iranian production and other supply disruptions in South Sudan, Yemen and Syria.

The report, to be updated every two months, could help the administration decide whether to grant waivers to sanction penalties if supplies are tight.

The EIA, an arm of the Department of Energy, has already received input twice from the Departments of State and Treasury and the Director of National Intelligence, which is unusual for a survey from a government department that is supposed to be independent from administration influence.

The findings could help the president determine whether oil consumers would be given leeway to cut Iranian crude shipments or reduce Iran's oil export revenues by less than the 20 to 25 percent analysts say would show sanctions are biting.

"The report sets the stage for the president's decision," said Bob McNally, who advised the George W. Bush administration on energy policy and now runs the Rapidan Group consultant group.

"By sticking this EIA report in the law presumably they expected if fundamentals and prices were moving against them they could use that as an excuse to ease sanctions," he said.

FEAR PREMIUM

The report will likely highlight the extent to which tension over the sanctions has led to a fear premium in global oil markets, which Obama could later use to justify some "leakage" of Iranian oil to consumers to calm oil markets.

"It will give analysis on why prices are high right now in certain regions," the EIA source said. It will not give any oil price forecasts.

Oil prices traded in London hit a 10-month high above $125 a barrel on Friday. In the United States gasoline prices are rising toward $4 a gallon, leaving Obama open to criticism from Republican presidential hopefuls ahead of November's election.

The administration has not set specific targets for consumer countries to reduce Iran's oil imports.

The White House is also considering releasing crude oil from its Strategic Petroleum Reserve to tame prices.

"(The report) could be used in both cases," said Frank Verrastro, director of the energy and national security program at the Center for Strategic and International Studies, saying what's in it could be used by the administration to help decide how harshly to apply Iran sanctions or weather to initiate emergency reserve drawdowns.

The administration last tapped the reserve last summer in co-ordination with member countries in the International Energy Agency. The drawdowns that totaled 60 million barrels of oil briefly pushed down prices.

(Reporting By Timothy Gardner; Editing by Alden Bentley)

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