ATHENS – Already deep in the throes of an economic crisis, Greece is moving quickly to fend off shortages of oil that will be created by an embargo from Iran on European countries by trying to get more capacity from Libya. Greece gets nearly one-third of its oil supplies from Iran. “ “Given that oil production in Libya is climbing back to pre-war levels, Libya is an alternative supply source,” Foreign Ministry spokesman Grigoris Delavekouras told reporters.
Iran has announced it was halting exports to several European countries, in apparent retaliation for an oil embargo that is to come fully into effect 1 July as part of Western sanctions against Tehran’s nuclear program, which the United States and Israel believe is designed to build a nuclear bomb, not provide more electricity. Iran is rich in oil but not in refining capacities.
Reuters reported that major traders are in talks with Greece supply crude oil and help the country cut reliance on Iranian oil ahead of a European ban, in a sign that they are happier about Greece’s creditworthiness following a second debt bailout. Greece turned to Iran as a supplier of last resort last year despite pressure from Washington and Brussels to end trade as part of a campaign against Tehran’s nuclear program, even as fears are building that Israel may attack Iran to prevent a nuclear strike if that country is building a bomb.
Greece relied on Iran for more than half of its oil imports during some months last year after traders and oil majors pulled the plug on supplies and banks refused to provide financing for fear that Athens would default on its debt. The Troika of the European Union-International Monetary Fund-European Central Bank is feeling better about Greece these days after the country rammed new austerity measures through the Parliament to get a second bailout of $172 billion to go along with a first of $152 billion in ongoing rescue loans to stave off bankruptcy.
Pressure is rising to cut imports of Iranian oil ahead of July, when a EU embargo on Iranian supplies comes into force. Traders told Reuters that Swiss-based Totsa, the trading arm of French oil major Total, and trading house Mercuria were in separate negotiations with Greek refiner Hellenic Petroleum to help it replace Iranian crude. Glencore, a leading Swiss-based commodities trader and one of the few that conducted business with Greece during the debt crisis, may also boost supplies, trading sources said. Hellenic would pay back the traders with refined products, which could then be sold in Greece or abroad. Hellenic, Total, Glencore and Mercuria declined to comment, Reuters reported.
Two industry source said talks were at advanced stages. A third industry source said negotiations were at an early stage. “If something were to happen, it would be unlikely before summer,” one source told Reuters. Hellenic acknowledged earlier this week that it was buying oil from Iran and paying for the shipments later, terms known in industry jargon as open credit terms. But the refiner also said that replacing Iranian oil would be “easy” with supplies from Saudi Arabia, Iraq and Russia.
Traders expect the terms offered by alternative oil suppliers to be far less generous, as many are still unable to enter into agreements with Greece because of the risk associated with the country’s debt. Part of the reason for swapping crude oil for products is that Hellenic is unable to obtain letters of credit from banks because of lingering default fears. “They have liabilities and banks could come in and demand payment,” said a London-based trading head who decided not to enter talks with Hellenic, saying it was too risky for his firm.
Greece, which has no domestic production, relies on oil imports and in some months last year Iranian oil’s share soared to more than 50 percent as supply from other places dropped. In 2010, Greece imported 46 percent of its crude from Russia and 16 percent from Iran. Saudi Arabia and Kazakhstan provided 10 percent each, Libya 9 percent and Iraq 7 percent, according to data from the European Union. Russian and Saudi oil is seen by traders as a likely replacement for Iranian oil as part of a deal to exchange crude for products.
Greece’s four refineries, belonging to Hellenic and Motor Oil, together can process around 400,000 barrels per day but that figure has fallen in recent months due to upgrades and maintenance. Iran has threatened to retaliate to EU sanctions by fully shutting off supplies to the bloc ahead of the embargo. It said this week it has already suspended deliveries to UK and French companies.
Greek petroleum products used to be among Europe’s cheapest before the country’s debt crisis. But since a 2010 bailout agreement with the EU and IMF to stave off a chaotic default, they have become among the most expensive, with gas at about $10 a gallon, and the prospects of losing supplies could put a big dent in the country’s ability to stay afloat during a crisis that has created a deep recession now in its fifth year.
“It makes sense that they could do something like that as they don’t have to issue letters of credit for the crude, and of course, Greece does have the refining capacity, and overcapacity even, as consumption has dropped here, so this would be a win-win situation,” an oil shipper based in Greece told Reuters. Hellenic Petroleum, which heavily relies on Iranian oil supplies, said replacing those deliveries would be “easy” and alternative grades from Saudi Arabia, Iraq and Russia were being considered. Chief Financial Officer Andreas Shiamishis said he did not expect the embargo to present a major issue, although he acknowledged the company was “enjoying open credit terms.” The terms likely to be offered by suppliers of heavy grades that may act as substitutes after July 1 are likely to be far less generous. Greece’s precarious financial situation may present Hellenic with another headache. In addition to finding suitable grades, traders and analysts say the refiner’s limited access to credit may further complicate the process of replacing Iranian crude.