June 15, 2009 / 10:02 AM / 10 years ago

Q+A: Iran's oil supply and potential for disruption

DUBAI (Reuters) - The sharpest protests in years in Iran, the world’s fifth biggest oil exporter, have had little impact on the oil price as yet. Analysts say events in Iran present an ‘upside risk’ for oil markets.

Is there any disruption to Iran’s 2.1 million barrels per day oil exports?

None. Markets would likely react if protests and unrest escalated and spread to the oilfields or export terminals in the country’s south, where most of its oil is produced and shipped. The majority of exports flow from its Gulf terminal at Kharg Island.

What would the impact of disruption be?

Disruption to Iran’s oil exports would drive up the oil price as refiners that buy the Islamic Republic’s oil would be forced to buy elsewhere. Strikes in the run up to the Iranian revolution in 1978 stopped the flow from the southern fields, and the country’s capacity has never recovered to the 6 million bpd of before the revolution.

The disruption was keenly felt by top oil consumer the United States, which had to ration fuel. The shortfall ruptured global supply lines, sparked panic-buying and saw a sharp rise in oil prices that contributed to the U.S. recessions of 1980 and 1981.

Iran now pumps around 3.8 million barrels per day, or about 4.5 percent of global supply.

How would the oil sector deal with a shortfall?

OPEC producers with spare capacity would likely increase output. Saudi Arabia is the world’s top oil exporter and holds most of the world’s spare production capacity. It has around 4.5 million bpd spare and has ramped up output in the past to compensate for outages.

Refiners would also use oil in inventories. Inventories are brimming and the sector is in a more comfortable position to deal with an outage now than it has been for years. The global recession has cut demand by the most since 1981 and OPEC members have reduced supplies, leading to a build up in spare capacity.

Who buys Iran’s oil?

Most of Iran’s oil goes to Asia, with Europe taking the rest. U.S. refiners are banned from processing it due to sanctions. U.S. refiners have no direct supply from Iran, but would feel the effect of any price spike caused by disruption.

Japan is the biggest buyer of Iranian oil, taking over 500,000 bpd or over 12 percent of Japanese supply. China comes next, with just under 500,000 bpd, or about six percent of its supply.

Which foreign oil companies are involved in Iran?

U.S. companies are banned from the oil and gas business in Iran. European companies scaled back operations and put new investments on hold as former U.S. President George W. Bush increased pressure on Iran over its nuclear dispute.

Norway’s StatoilHydro STL.OL is operating at the country’s giant offshore South Pars gas field and near completing a project there. Italy’s Eni (ENI.MI) is finishing a development phase at the Darkhovin oilfield.

Russian giant Gazprom (GAZP.MM) agreed last year to take on more Iranian gas projects and has invested about $4 billion since 2007 in the country. Chinese firms have signed high profile deals but investment and work to date has been slow.

Reporting by Simon Webb in Dubai, additional reporting by Fredrik Dahl in Tehran; editing by Janet McBride

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