Iran sanctions could lead to higher gas costs in U.S.

Adriene Hill Feb 20, 2012

Adriene Hill: Oil prices have jumped to a near nine month high this morning. That’s after Iran cut exports to Britain and France over sanctions related to Iran’s nuclear program.

For more on the move, we go to Saket Vemprala. He’s an oil and gas analyst for Business Monitor International in London. Good morning.

Saket Vemprala: Hello, good morning.

Hill: So neither Britain nor France are big buyers of Iranian oil. Why is this news pushing up prices so much today?

Vemprala: The news is pushing up prices partly because the market is concerned that what could follow next would be a further cutoff of supplies elsewhere in the region, including to major European buyers like Italy and Spain and so on. But also fears that as Saudi Arabia increases production to meet the shortfall in demand, that global spare capacity of oil production is starting to fall. And so, in the event of any unforeseen disruption to oil supplies elsewhere, the world may not have enough spare capacity to meet the incremental demand.

Hill: Now what does today’s announcement from Iran tell us about the pressure Iran is feeling from international sanctions?

Vemprala: This is, as you’ve noted earlier, a largely symbolic measure. But I think it would suggest they are getting increasingly desperate.

Hill: What’s this going to mean for gas prices here in the U.S.?

Vemprala: We could see gas prices — particularly along the east coast of the USA — go up as a result of these measures. Particularly because although at the moment, the U.S. doesn’t import any Iranian oil, the U.S. is not immune to any increases in the price of Brent crude — which is the main benchmark for the European market. And movements in Brent crude can affect refined fuels prices along the East Coast. And so we could see prices start to move up as a result of this.

Hill: Saket Vemprala, thanks so much.

Vemprala: Thank you.

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