Special Report: Chavez’s oil-fed fund obscures Venezuela money trail

By Brian Ellsworth and Eyanir Chinea

MACAPAIMA, Venezuela | Wed Sep 26, 2012 7:16am EDT

(Reuters) – The site of what may someday be Venezuela’s first newsprint factory today consists of little more than a warehouse, several acres of cleared tropical savannah, and two billboards bearing pictures of President Hugo Chavez.

More than five years after Chavez first hailed state-owned Pulpa y Papel CA as a vanguard “socialist business,” there is little else to show here in rural southeastern Venezuela for the more than half a billion dollars that state investment fund Fonden set aside for the project.

As with many Fonden investments, tracking the money sent to Pulpaca, as the project is known, is difficult. A Pulpaca annual report for 2011 said the project was stalled for lack of funding. A manager at the dusty gates of the compound declined to comment. So did contractors involved. Requests for interviews with the industry ministry, charged with disbursing Fonden money for such projects, went unanswered.

Fonden is the largest of a handful of secretive funds that put decisions on how to spend tens of billions of dollars in the hands of Chavez, who has vowed to turn the OPEC nation’s economy into a model of oil-financed socialism. Since its founding seven years ago, Fonden has been funneling cash into hundreds of projects personally approved by Chavez but not reviewed by Congress — from swimming-pool renovations for soldiers, to purchases of Russian fighter jets, to public housing and other projects with broad popular appeal.

The fund now accounts for nearly a third of all investment in Venezuela and half of public investment, and last year received 25 percent of government revenue from the oil industry. All told, it has taken in close to $100 billion of Venezuela’s oil revenue in the past seven years.

Fonden attracts scant attention beyond policy experts and Wall Street analysts. But it is at the heart of Chavez’s promise to use Venezuela’s bulging oil revenue to build new industries, create jobs and diversify the economy in the service of his self-styled revolution.

Finding out how much of that money Fonden has spent, and on what, is not easy. The most detailed descriptions usually come from Chavez himself, rattling off multimillion-dollar investments on television while chatting with workers and extolling the virtues of socialism. Fonden does not regularly release lists of projects in its portfolio.

Adversaries excoriate it as a piggy bank that lets Chavez arbitrarily spend billions of dollars with little more than the stroke of a pen and perhaps a celebratory Tweet, with accountability to no one. The secrecy also makes it impossible to determine what went wrong – at Fonden, or at the ministry level, or on the ground — when a project like Pulpaca stalls.

“I’m shocked that we don’t know exactly what has happened to $105 billion,” said Carlos Ramos, an opposition legislator who has led a campaign to extract more information about the fund from the finance ministry. “That is not Chavez’s money. That money belongs to 29 million Venezuelans and as such the information should be available to everyone.”

Critics point out that since Fonden’s creation, Venezuela’s economy, rather than becoming more diversified, is even more dependent on its mainstay: In the first half of this year, oil accounted for 96 percent of export earnings, compared with about 80 percent 10 years ago.

The perception of secrecy has left investors unsure how to measure Venezuela’s fiscal strength. Fitch Ratings this year warned it could downgrade the country’s debt, in part because of transparency concerns. Those same concerns are also helping push up borrowing costs. Despite Venezuela’s ample oil wealth, yields on the country’s bonds are nearly equal to those of impoverished Pakistan, and higher than war-ravaged Iraq’s.

“The visible portion that we can compare in Venezuela vis-à-vis other countries has declined considerably,” said Erich Arispe, director in Fitch Ratings Sovereign Group. “I can’t rate what I can’t see.”

CONTROL THE PURSE STRINGS

Chavez’s control over the country’s purse-strings — unprecedented for any Venezuelan president in more than 50 years — will be a key advantage in his bid for re-election on October 7. Projects successfully executed with billions of dollars in Fonden financing — housing, hospitals and public transportation lines — have improved the lot of Venezuela’s poor, many of whom are already fans of Chavez’s leadership.

“It’s magnificent. It means we can have access to health care, education. All of this is for the people,” said Domingo Gonzalez, 58, after being treated for hypertension at a new Caracas hospital funded by Fonden. “People say Chavez is throwing the money away, but that’s obviously a lie, because otherwise we wouldn’t have hospitals like this one,” he said at the hospital gate near the slum of Petare, where middle-class Caracas merges with a chaotic jumble of narrow winding streets and ramshackle homes.

At the same time, Chavez is under growing opposition fire over abandoned or half-built projects, including some that received millions of dollars from Fonden. A fleet of modern busses for a transit project in the city of Barquisimeto, which received $301 million from Fonden, were left sitting idle so long that vines started growing inside them.

Some information about Fonden’s outlays can be found in annual reports of government ministries. The finance ministry last year released a partial list of projects, following pressure by Ramos, the opposition legislator. A link on Fonden’s website apparently dating from 2007 also provided a partial list of projects, but was taken offline in the first week of September. A cryptically worded internal Fonden document leaked to the press provides an outline of its financial investments, though it omits key details, such as losses on holdings.

Other publicly available data is provided at irregular intervals and in formats that often do not allow for comprehensive comparisons. Public officials pressed for additional information are as laconic as Chavez is loquacious. A Reuters reporter at a Fonden event who approached the finance minister — the fund’s president – to ask questions was physically restrained by two security personnel.

CENTURY OF PLUNDER

Venezuela’s public finances have never been particularly transparent, and much of the oil industry’s proceeds have been squandered for more than 100 years.

Early 20th century dictator Juan Vicente Gomez passed out concessions to friends while enriching himself. The country became known as “Saudi Venezuela” during the 1970s oil boom, but corrupt politicians wasted and stole much of the bounty, and Venezuela’s economy was in ruins by the 1980s, after oil prices crashed.

Chavez’s vow to direct oil revenue to the poor was music to the ears of millions and helped propel him to the presidency in a landslide election victory in 1998.

Fulfilling that promise required years of struggle for control of state oil company Petroleos de Venezuela SA, a tussle that would be a major factor in sparking a bungled 2002 coup. A two-month oil industry walkout meant to force Chavez from power gave him the opportunity to sack PDVSA’s opposition-linked management, as well as half the company’s staff, leaving him firmly in control of oil revenue. He also sharply raised royalties and taxes on all producers operating in Venezuela.

In 2005, as oil prices were reaching new highs, Chavez found a way to sidestep bureaucracy and speed up spending.

Rather than creating a new state agency, Chavez founded a corporation: National Development Fund Inc, universally known as Fonden. Its status as a corporation owned by the finance ministry lets it disburse billions of dollars in state money while subject to few of the reporting and disclosure requirements that apply to government entities.

Money funneled through Fonden is ultimately spent by government agencies, similar to funding from Congress. But it doesn’t require congressional approval. Instead, Fonden outlays begin with Chavez’s approval and are viewed by a board of directors made up of his closest allies.

They include Finance Minister Jorge Giordani, a septuagenarian economist considered the brains behind the country’s byzantine price and currency controls, and Oil Minister Rafael Ramirez, who is also president of PDVSA.

Industry Minister Ricardo Menendez, who oversees the Pulpaca pulp and paper project, also has a seat on the board, as does long-time Chavez ally Vice President Elias Jaua.

It is not clear how often the group meets, and it does not publish meeting minutes.

CITY OF ALUMINUM

In one of his many grand plans, Chavez has vowed to turn the geographic center of Venezuela, a sparsely populated savannah where lush vegetation grows out of reddish soil, into a vibrant “City of Aluminum.”

The flagship project for the plan is an aluminum rolling mill called Servicios de Laminacion CA, or Serlaca, in the town of Caicara.

The company’s most recent annual report shows Serlaca had spent at least $312 million on the project by 2011. A subsidiary of Italian company Salico had been tasked with building equipment for the plant, according to an aluminum industry trade publication dated October 2010 posted on Salico’s website. Salico did not respond to a request for comment.

By 2011, construction of the equipment had been stalled for 18 months for lack of funding, and the project had piled up debts with construction contractors, according to Serlaca’s annual report. A visit last month to the site showed only a clearing with a concrete foundation and structural skeleton for the main factory.

Two union leaders and a civil engineer interviewed at the gates of the site said the project was moving at a snail’s pace and contractors were using their own money to keep it from grinding to a halt. They said infighting between unions had killed seven workers since construction began four years ago.

Complaints from the neighboring community grew as the project remained stalled, and Caicara’s mayor accused Serlaca’s president of using company funds to advance his political career. The industry ministry in 2011 named a committee to look into the project, but Serlaca’s president – later sacked by Chavez – blocked the group’s efforts.

In a televised broadcast in March from Havana, where he was receiving treatment for cancer, Chavez complained the project was moving too slowly and offered a plan to restart it: $500 million from Fonden.

Serlaca’s current president did not respond to calls seeking details about the additional funding.

FINANCIAL ENGINEERING, SOCIALIST STYLE

With cash rushing into Fonden faster than it can build new roads and factories, the fund often has billions of dollars to invest in securities.

But as the leaked internal report shows, Fonden at various times bought risky, high-yield securities in efforts to expand its resources while helping Chavez’s foreign allies. Its unusual portfolio has included bonds issued by ally Ecuador, high-yield derivative securities issued by Lehman Brothers, and Honduran bonds purchased to support then-President Manuel Zelaya.

By 2008, these investments had become problematic: Lehman went bankrupt, and Ecuador declared a partial debt default. In addition, Fonden unloaded the Honduran bonds — purchased at a concessionary rate of 0.75 percent — months after buying them because Zelaya was ousted in a military coup.

Fonden hasn’t revealed whether it lost money in these operations and if so, how much it lost. The fund sold off some of the assets and swapped the remainder for $960 million worth of derivative securities called structured notes, according to the internal Fonden report obtained by Reuters.

But it offers no detail on the market value of those securities. The report does say that Fonden’s auditors pointed out that the fund had not adequately valued some $1.8 billion in complex fixed-income securities. That represented close to a quarter of its liquid assets of $7.9 billion in late 2011, according to the finance ministry’s latest annual report.

CASTING A WIDE NET

Government leaders bristle at the idea that Fonden is Chavez’s slush fund. But Fonden appears to have violated its own internal rules about which investments it does and doesn’t make.

A Fonden 2007 instruction sheet for agencies seeking funding says it does not finance the purchase of buildings, vehicles or shares in companies. But by 2010, it had disbursed nearly $700 million to buy shares in a retailer and two cement-makers — payments generated by several nationalizations ordered by Chavez. It also set aside $46 million to buy an embassy building in Moscow, and $19 million to buy a fleet of busses for use during the 2007 America’s Cup soccer championships.

The president’s office received almost $10 million from Fonden, according to the leaked internal report. The office did not respond to requests for clarification.

Fonden also gave $156 million to a social program called Mothers of the Barrio that provides cash stipends to mothers in extreme poverty, contradicting its stated mission to make “productive investments” that create jobs and spur development.

The national comptroller’s office noted that in 2009 it detected “presumed irregularities” by Mothers of the Barrio, including payments to women who were not registered in the program and did not meet the conditions for participation. The women’s ministry, which oversees the program, did not respond to requests for comment.

Fonden has also become a conduit for financing joint projects with Cuba, bankrolling at least $6.1 billion and disbursing at least $5.1 billion for some of the hundreds of ventures the two allies had signed as of 2010.

Fonden does not say what the projects are.

Press releases from bilateral meetings mention only several of the projects signed at each one, which run the gamut from a software development firm to a scrap-metal recycling operation. An agency overseeing the projects called the Cuba-Venezuela Joint Commission, which reports to the oil ministry, did not respond to requests for information.

For Pulpaca, the two billboards at the site provide details on what has been visibly completed to date: around $43 million to clear land and build the warehouse. Its last annual report says that as of 2011, it had spent nearly $530 million.

On a visit in August, silence hung over the compound. Trucks and bulldozers sat idly parked in rows. There was no sign of activity, or of the football-field-size machines that will be needed to turn Caribbean pine into paper.

Even so, it continues to enjoy financial support from the government. Around the time Pulpaca said it was struggling to move forward, Congress approved an additional $305 million for the project. That, combined with the Fonden outlays, brings total funding to $845 million.

And that’s not all. Pulpaca said in a recent presentation that it will need $1.4 billion to complete the newsprint factory.

(Additional reporting by German Dam and Maria Ramirez in Puerto Ordaz, and Gustavo Palencia in Tegucigalpa; editing by Kieran Murray and John Blanton)

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Consumers plot emergency oil release as Saudi decries high prices

By Yann Le Guernigou, Muriel Boselli and Jonathan Leff

PARIS/NEW YORK | Wed Mar 28, 2012 6:19pm EDT

PARIS/NEW YORK (Reuters)- Saudi Arabian Oil Minister Ali al-Naimi mounted his most direct rhetorical attack against high oil prices on Wednesday, but showed no sign of moving to increase supplies even as France joined the United States and Britain in talks for a release of strategic reserves.

Two weeks after Reuters initially reported that Britain and the United States were set to agree on tapping emergency stockpiles, French Energy Minister Eric Besson said the European nation was also in talks with Washington. Le Monde reported that the move could come in a matter of weeks.

At the same time, the Financial Times published a rare opinion piece by the head of the world’s largest crude oil exporter, who said a feared shortage of oil supplies was a “myth” but reiterated that Saudi Arabia was ready, able and willing to meet any gap in supplies.

The moves emphasized the growing concern from both sides of the market — producers and consumers — about the economic and political impact of the 15 percent jump in oil prices this year. But it also highlighted the different responses they are taking.

Any release of strategic reserves is expected to be based on the assumption that oil markets face a shortage of crude, putting Western economies directly in opposition to the opinions offered this month by top exporter Saudi Arabia.

Naimi’s comments were his bluntest yet on oil prices, which have been driven by the loss of supplies from several producers across the world and, more importantly, by the threat of a disruption from Iran.

“The bottom line is that Saudi Arabia would like to see a lower price,” he said.

“Supply is not the problem, and it has not been a problem in the recent past. There is no rational reason why oil prices are continuing to remain at these high levels.”

But in the editorial, Naimi fell short of saying that the kingdom planned to increase production. Oil markets, already trading lower on the day after news of the French talks with the United States, barely budged after his comments.

PRICE THREAT

Oil markets have been gripped this year by expectations U.S. and EU sanctions against Tehran aimed at halting the OPEC nation’s nuclear ambitions will cause a shortage in global oil market.

Global supplies are already down by more than a million barrels per day, according to a Reuters survey, due to outages in Yemen, Syria, South Sudan and the North Sea.

Rising oil prices have become a major headache for politicians around the world, including U.S. President Barack Obama who is aiming for re-election in November and facing public anger over soaring U.S. gasoline prices.

Earlier in March, British sources said London was prepared to cooperate with Washington on a release of strategic oil stocks that was expected within months, in a bid to prevent fuel prices from choking economic growth.

A White House official reiterated that the United States was considering a reserve release but no decisions had been made.

“As we have said repeatedly, while this is an option that remains on the table, no decisions have been made and no specific actions have been proposed,” White House spokesman Josh Earnest told reporters.

“Anybody who tries to convince you — in this government or any other government, frankly — that specific decisions have been made or actions have been proposed is not speaking accurately.”

Fuel prices in France have hit record levels, prompting an intense debate between presidential candidates, also ahead of a national election. The French budget minister and government spokeswoman, Valerie Pecresse, told journalists France had joined the United States and the UK in IEA consultations to receive authorization to draw from strategic stocks.

Oil reserve releases are normally coordinated by the International Energy Agency that represents 28 industrialized countries on energy policy.

But the head of the IEA, Maria van der Hoeven, has said on several occasions that a coordinated IEA release is not warranted because there is no significant supply disruption on world oil markets. Germany and Italy say they are opposed.

Van der Hoeven said earlier this month that countries could choose unilaterally to release stocks in consultation with the agency. The IEA declined further comment on Wednesday.

The Paris-based IEA has authorized only three coordinated releases since it was founded in 1974, with the last one in June 2011 in response to lost Libyan production during its civil war.

The government in Berlin said it was unaware of any official request from the United States to release emergency oil stockpiles and did not believe the current situation justified such action under German law.

The German law on oil provisions says emergency reserves can only be released in the case of “physical disruption to supplies. In our view, there is no physical shortage at the moment,” a government spokeswoman told reporters.

SAUDI REASSURES

Saudi Arabia is the only country in the world with significant spare capacity to compensate for a major supply shortfall.

Naimi last week insisted Saudi Arabia could immediately ramp up production up to its full strength — 12.5 million barrels per day (bpd) — from 9.9 million bpd now if buyers requested more oil.

In his piece on Wednesday, Naimi said that the OPEC kingpin did not want rising fuel costs to undermine the economy of consumer nations. Earlier this year he identified $100 a barrel as an ideal price for producers and consumers, about $25 below current world prices.

“I hope by speaking out on the issue that our intentions – and capabilities – are clear. We want to see stronger European growth and realize that reasonable crude oil prices are key to this,” he wrote, adding Saudi Arabia had a responsibility to “do what it can to mitigate prices.”

But, echoing his comments from last week, the oil minister said that it was not actual supply disruptions that were driving up prices, but political tensions and worries about potential shortages that were driving the market.

“It is the perceived potential shortage of oil keeping prices high – not the reality on the ground,” he said. “There is no lack of supply. There is no demand which cannot be met.”

(Additional reporting by Emmanuel Jarry, Jeff Mason, Stephen Brown, Marcus Wacket, Jonathan Leff. Writing by Matthew Robinson; Editing by Marguerita Choy)

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Iran Sanctions Tighten as OSG to Frontline Halt Crude Cargo

Feb. 13 (Bloomberg) — Sanctions on Iran are tightening after Overseas Shipholding Group Inc., Frontline Ltd. and owners controlling more than 100 supertankers said they would stop loading cargoes from the Organization of Petroleum Exporting Countries‘ second-largest producer.

OSG, based in New York, said Feb. 10 that the pool of 45 supertankers from seven owners in which its carriers trade will no longer go to Iran. Four OSG-owned ships, managed by Tankers International LLC, called at the country’s biggest crude-export terminal in the past year, ship-tracking data compiled by Bloomberg show. Nova Tankers A/S and Frontline, with a combined 93 vessels, said Feb. 9 and 11 they wouldn’t ship Iranian crude.

Previous efforts to curb Iran’s oil income and stop it from developing nuclear weapons failed because the structure of the shipping industry means vessels are often managed by companies outside the U.S. or European Union. An EU embargo on Iranian oil agreed to Jan. 23 extended the ban to ship insurance. With about 95 percent of the tanker fleet insured under rules governed by European law, there are fewer vessels able to load in Iran.

“It’s the insurance that’s completed the ban on trading with Iran,” said Per Mansson, a shipbroker for 31 years and managing director of Norocean Stockholm AB, which handles tanker charters. “Last summer, many countries started to be a little bit tougher, but the insurance is the real trigger.”

Kharg Island

OSG’s Overseas Rosalyn, which can carry about 2 million barrels, arrived at Kharg Island on Jan. 27 and departed the next day, tracking data compiled by Bloomberg show. It left about 16 feet deeper in the water, an indication it loaded cargo. The vessel is managed by Tankers International, which has its head office in Cyprus. OSG complies with all U.S. and European laws and its headquarters in New York doesn’t manage charters, OSG Chief Executive Officer Morten Arntzen said in an e-mail Jan. 30.

Tankers International told owners the pool’s vessels will no longer sail to Iran after changes to EU regulations, Arntzen said in a Feb. 10 e-mail. Insurers are no longer able to cover vessels trading in the Persian Gulf nation, he wrote.

Ship owners sometimes group their vessels to coordinate charters and improve earnings. The Tankers International pool operates 45 very large crude carriers, or VLCCs, from OSG and six other companies, including Antwerp-based Euronav NV and St. Helier, Channel Islands-based DHT Holdings Inc.

Nova Tankers

“All the owners in the pool have stated that they will not trade Iran because of the consequences,” DHT CEO Svein Moxnes Harfjeld said by phone Feb. 10. “DHT is complying with all relevant regulations and sanctions, and following recent developments our vessels have been instructed not to trade Iran.”

Frontline companies including Hamilton, Bermuda-based Frontline Ltd. and Frontline 2012 won’t ship Iranian crude, Jens Martin Jensen, chief executive officer of Frontline Management AS, said by e-mail and phone on Feb. 11 and 12. Frontline operates 43 VLCCs, according to its website.

Nova Tankers, the Copenhagen-based operator of a pool of ships including vessels owned by Mitsui O.S.K. Lines Ltd., won’t load Iranian crude because of European sanctions, Managing Director Morten Pilnov said by phone from Singapore on Feb. 9. The pool will have about 50 vessels by the end of this year, according to data on its website.

Nippon Yusen K.K., the second-largest owner of VLCCs, won’t carry Iranian oil if it means ships aren’t insured, Yuji Isoda, an investor relations manager for the Tokyo-based company, said Feb. 9. The company doesn’t yet know how its insurers will handle the EU sanctions, he said by phone.

Tighter Restrictions

U.S. and EU leaders are trying to tighten restrictions on business with Iran, which produced 3.55 million barrels of crude a day in January, 11 percent of OPEC’s total, according to data compiled by Bloomberg. Oil sales earned Iran $73 billion in 2010, accounting for about 50 percent of government revenue and 80 percent of exports, the U.S. Energy Department estimates.

The United Nations has imposed four sets of sanctions on Iran, and the International Atomic Energy Agency said in November the country had studied making an atomic bomb. The government in Tehran says its nuclear program is for civilian purposes and that documents held by the IAEA purporting to show designs and tests of weapon components are fakes.

Iran has threatened to block shipments through the Strait of Hormuz in the Persian Gulf, through which about 20 percent of the world’s globally traded oil passes. Crude futures in New York advanced 32 percent to $100.19 a barrel since Oct. 4.

Senate Bill

More trade with Iran may be blocked if a bill approved Feb. 2 by the U.S. Senate Banking Committee becomes law, making U.S. companies responsible for the actions of their foreign units when dealing with Iran. A spokesman for committee chairman Tim Johnson, a South Dakota Democrat, declined to comment.

While the Japanese government said last month it would curb imports from Iran, India’s Foreign Secretary Ranjan Mathai said Jan. 17 his country wouldn’t. China, the Persian Gulf country’s largest customer, needs the oil for development, Vice Foreign Minister Zhai Jun told reporters Jan. 11.

Founded in 1948, OSG has 111 vessels and 3,500 employees, according to its website. Its biggest shareholders include the family of board members Oudi and Ariel Recanati, who control about 10 percent, data compiled by Bloomberg show. Oudi Recanati is an Israeli citizen and Ariel Recanati is a U.S. citizen, according to a Sept. 6 filing with the Securities and Exchange Commission. Charles A. Fribourg sits on the board of OSG and Continental Grain Co., the data show.

Marshall Islands

Shares of OSG, which has 14 supertankers, fell 71 percent in the past year as a glut of vessels drove down transport rates. The company will report a loss of $178.6 million for this year, down from $204.4 million for 2011, according to the median of five analyst estimates compiled by Bloomberg.

Three other OSG vessels from the Tankers International pool called at Kharg Island in the past year, data compiled by Bloomberg show. They fly the Marshall Islands flag, which means they are registered there for regulatory purposes, according to data on the website of International Registries Inc. Almost 9 percent of the tanker fleet is flagged in the Marshall Islands, behind Panama and Liberia, according to data compiled by London- based Clarkson Plc, the world’s biggest shipbroker.

“Ship owners and brokers are now seeing a tightening of sanctions,” said Bob Knight, managing director of tankers at Clarkson in London. “This is a sign that sanctions are starting to bite.”

–With assistance from Michelle Wiese Bockmann and Rob Sheridan in London. Editors: Dan Weeks, Sharon Lindores.

Source

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Iran could ban EU oil exports next week

By Hashem Kalantari

TEHRAN | Fri Jan 27, 2012 8:36am EST

(Reuters) – A law to be debated in Iran’s parliament on Sunday could halt exports of oil to the European Union as early as next week, the semi-official Fars news agency quoted a lawmaker as saying on Friday.

“On Sunday, parliament will have to approve a ‘double emergency’ bill calling for a halt in the export of Iranian oil to Europe starting next week,” Hossein Ibrahimi, vice-chairman of parliament’s national security and foreign policy committee, was quoted as saying.

Parliament is pushing for the export ban to deny the EU a 6-month phase-in of the embargo on Iranian oil that the bloc agreed on Monday as part of a raft of tough new Western sanctions aimed at forcing Iran to curb its nuclear program.

The EU accounted for 18 percent of Iranian crude oil sales in the first half of 2011, according to the U.S. Energy Information Administration (EIA), making it Iran’s second biggest customer after China.

“If the deputies arrive at the conclusion that the Iranian oil exports to Europe must be halted, the parliament will not delay a moment (in passing the bill),” Fars quoted Moayed Hosseini-Sadr, a member of parliament’s energy committee, as saying.

“If Iran’s oil exports to Europe, which is about 18 percent (of Iran’s oil exports) is halted the Europeans will surely be taken by surprise, and will understand the power of Iran and will realize that the Islamic establishment will not succumb to the Europeans’ policies,” he said.

Reflecting how seriously Tehran was taking the idea, Iran’s OPEC governor Mohammad Ali Khatibi told the ILNA news agency the country might choose to raise the issue at the next OPEC meeting.

Iran’s conservative-dominated parliament has previously shown it is ready to force the government to take action against what it sees as hostility from the West.

In November it voted to expel the British ambassador after London announced new sanctions ahead of other EU countries.

The day after that vote, radical Iranians stormed the British embassy, causing London to withdraw all staff and close the mission.

(Writing by Robin Pomeroy; editing by James Jukwey)

Source

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Embargo On Iranian Oil Delayed By Six Months

Eric Platt

A European Union embargo on Iranian oil will likely be delayed by six months, Bloomberg‘s Thomas Penny reports.

The E.U. is holding for countries including Italy, Greece and Spain to find alternative sources.

New York oil prices have fallen 1.8% on the news.

Iran is the second largest OPEC oil producer, with 3.6 million barrels recovered per day last month.

Source

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Peak oil leaves the spotlight as global economic uncertainty rules oil prices

Peak oil theories over the last few years are now not in the spotlight that rules over oil prices this year as the new king of market movers, the “global economic uncertainty” looks set to be a game changer in the coming months ahead.

IEA Oil Report 2012

The latest Monthly Oil Market Report from the US IEA (International Energy Agency) forecasts the call on OPEC crude in 2012 at 30.2 million barrels per day. It also forecasts global oil demand will average 90.3 million barrels per day in 2012, an increase of 1.3 million over 2011.

However, the crude oil markets are expected to remain volatile throughout 2012, with the fundamentals of oil supply and demand continuing to take a back seat to the debt situation in Europe and tensions in the Middle East, with Iran in the driving seat.

“Given already very low European crude inventories, a spate of precautionary buying and escalating tensions surrounding the Iranian issue could sustain prompt prices at levels higher than otherwise, amid the growing concerns about the euro zone and weaker global economic activity for 2012.” the IEA said on 12th December.

Iran and Oil Supplies

Turning to oil supplies, the Iranian oil issue remains unclear, as the USA and its allies along with the EU are considering new sanctions on the Iranian oil as we know which increase fears that it will curb the oil supply, which will push oil prices to the upside strongly, and from the Iranian side, it said that if any sanctions happened, it will stop oil passing from the Strait of Hormuz.

European Debt

Back to Europe which remained for the past year the main factor that drive global markets, as the crisis is deepening and contagion risks are appearing, where many negative consequences can be noticed, however, hopes increased at the beginning of the year that serious measures would be implemented to halt the crisis’ train.

US Dollar and Oil Prices

On the other hand, the US dollar is encouraging crude oil to continue this upside journey, as it declined at the beginning of the year due to different factors. The ICE US Dollar Index opened the session at 80.27 and recorded a high of 80.29 then it declined to reach so far a low of 79.88, and is currently trading around 79.95.

In general, trading volumes remain mightily low, which give space for any minor factor to affect crude heavily and give it momentum, where fluctuations may be evident ahead of the American data which may add positive signs for the world’s largest economy.

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Everything You Need To Know About The Shale Gas Revolution

Mamta Badkar

There has been a surge in domestic energy production in 2011, and a large part of it has been attributed to the shale boom. In fact, the U.S. has twice as much natural gas as Saudi Arabia has oil.

Shale gas is touted as a cleaner for of energy, and with its contribution to the economy, those in favor of recovering these resources argue that it would cut American and global dependence on OPEC.

Yet ‘fracking,’ a crucial part of shale gas extraction, is considered dangerous and many fear its impact on the environment. In the EU, member states are diverging significantly in national policy responses to shale gas regulation.

Where does shale come from? How can you cash-in on the shale boom? Why is fracking so controversial? A report from UK think tank The Global Warming Policy Foundation gives us a quick breakdown of everything you need to know about shale gas market.

Click here to see how shale gas works >

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Oil Surge Begins

Submitted by Tyler Durden

Just as Europe seems destined to tip into recession and the US growth miracle decouples its reality from perceived global slowdowns, the oil market steps in to balance the equation. With WTI breaking $102 and Brent over $111 this morning, driven by Iran and Syria tensions, it would seem tough for a nation exporting its way to success, that is so dependent on both domestic consumer and energy to grow ‘as expected’ with energy premia so high – or perhaps the justification is the energy sector will carry the S&P through the next quarter as earnings expectations are cut. Nevertheless, as Reuters points out, the risk of supply disruptions remains high.

Reuters: Oil up near $111 on Iran supply risk concerns

Oil prices rose on Monday with Brent crude futures up near $111, extending last week’s gains as rising tensions between Iran and the West increased the risk of disruption to crude shipments by the world’s fifth-largest oil exporter.

Iran warned on Sunday that any move to block its oil exports would more than double crude prices with devastating consequences for a fragile global economy.

Brent crude was up $1.14 at $111.08 a barrel by 1313 GMT, after last week posting a gain of more than 3 percent, its best weekly gain since mid-October. Earlier Brent had pushed to an intraday high of $111.22 a barrel.

U.S. crude was up 81 cents to $101.77 a barrel, having posted a gain of 4.3 percent last week.

Christopher Bellew, an oil trader with Jefferies Bache in London, said that worries about Iran and Syria were helping to buoy oil prices. “If Iranian exports were suspended that would be very significant as the market is tight already,” he said.

The European Union is considering a ban – already in place in the United States – on Iranian oil imports. The storming of the British Embassy in Tehran last week has opened the door for tougher action against Iran which is thought to be working on a nuclear bomb.

“The risk of disruptions to oil supplies remains high,” said Christophe Barret, global oil analyst at Credit Agricole CIB. An embargo on Iranian oil “would introduce severe disruption to refining in several EU countries” he said.

Barret added that speculation about possible military strikes on Iranian nuclear sites have helped to increase the risk premium on oil prices.

But on Friday, U.S. Defense Secretary Leon Panetta made one of his most extensive arguments to date against any imminent military action against Iran over its nuclear programme, saying he was convinced sanctions and diplomatic pressure were working.

Israel has called a nuclear-armed Iran a threat. Iran says it is enriching uranium for peaceful purposes.

In Syria, EU sanctions are already biting with Royal Dutch Shell shutting down its activities there.

On Monday, Gulfsands Petroleum said it was reviewing the impact of the latest EU sanctions against Syria on its production activities and its contracts with the Syrian government and the General Petroleum Corporation (GPC).

“Syria was exporting about 400,000 barrels per day at the start of the year and it is probably exporting nothing at the moment,” said Bellew.

Oil ministers from OPEC members Kuwait, Oman and Bahrain said that the market was well supplied, echoing similar comments by Qatar’s energy minister and the OPEC Secretary-General Abdullah al-Badri at the weekend.

OPEC will meet next week in Vienna, but with Iran holding the presidency of the OPEC conference until the end of the year, analysts do not expect much from the meeting. Iran is OPEC’s second-largest producer.

Source

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