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US sanctions on Iran will boost Middle East energy security: State Department official

The US is committed to Middle East political stability, the Trump Administration's top energy diplomat told S&P Global Platts, with robust American oil production tamping down market volatility and close ties with allies in the region helping to constrain Iran.

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Analysts warn that threats from Iran to regional energy infrastructure and shipping remain high in the wake of the US killing of Iranian general Qassem Soleimani. But stiff US sanctions that deprive Tehran of crucial revenue will crimp the regime's ability to finance destabilizing activities against its neighboring countries, ultimately boosting energy security, said Francis Fannon, assistant secretary in the US State Department's Bureau of Energy Resources.

"Our objective was to deprive them of this revenue. In so doing, we've taken more than 2 million b/d off the market," Fannon said Sunday in an interview. "We've deprived the regime of tens of billions of dollars that would have otherwise gone to fund proxy wars, terrorism and instability."

Platts spoke to Fannon on the sidelines of the Atlantic Council Global Energy Forum in Abu Dhabi, where he also discussed Iraq's reliance on Iranian gas and electricity, the state of Iran's oil exports, and US "energy abundance."

This transcript has been lightly edited for clarity.

S&P GLOBAL PLATTS: In your conversations with officials around the region, how much concern remains about threats from Iran to energy security and infrastructure?

FANNON: I don't think it's necessarily elevated. What has been increasingly recognized is the market having a greater degree of confidence in the US producer to respond to instability and volatility in the oil markets. The rest of the world is starting to catch up to the US success story. Now, I was here around the same time last year in Abu Dhabi, and I was here then, as I'm here now, firstly to underscore the US commitment to political stability in the region and to work in partnership with our allies. Second is to speak about and encourage greater confidence in resilient, transparent energy markets. In short, we have security of those markets, not just the potential but the meaningful production from the US and the responsiveness of the US producer.

PLATTS: President Donald Trump has indicated, after some confusion about the continued presence of US troops in Iraq, that he will not be withdrawing them. How vital is the presence of US troops to that energy security and political stability that you talked about?

FANNON: The Iraq issue, I would invite people to look closely to what that vote was and what it represented and how one should interpret out of that. The US commitment to Iraq and political stability is enduring. Iraq's oil and gas industry is really an opportunity to support a free and sovereign Iraq. That's what we've been calling for, for many years. Iraq has great potential. We want to help them realize that.

PLATTS: Iraq is reliant on gas and electricity supplies from Iran, and you've been in dialogue with Iraq to try and get them to reduce that reliance on Iranian energy. How close is Iraq to getting off those supplies and what can the US do to help that?

FANNON: Our sanctions are prescriptive, and so you mentioned Iran continues to export energy to Iraq. In order for that to continue, the US has issued a waiver from those sanctions on a 90-day rolling basis. In order to achieve that waiver, Iraq must demonstrate credible steps that it is taking to reduce its dependency on Iran. I can't go into details on that, but that's the process that we will pursue, and I suspect we will have a robust dialogue and carefully review that decision.

PLATTS: President Trump has suggested he's also considering sanctions on Iraq if US troops are ordered to be withdrawn. Can you talk about what is being considered if this comes to pass?

FANNON: I can't really speak to that, I'd have to direct you to the White House.

PLATTS: You mentioned that US sanctions have taken more than 2 million b/d of Iranian oil exports off the market. How much Iranian oil is still leaking onto the market?

FANNON: I can't speculate. The Iranian regime is a criminal enterprise, and criminals operate based on avoiding the law. So I can't speculate on what those numbers would be. I would point out, when I was here a year ago, the US had provided eight countries with [Iran sanctions waivers], and oil prices were about $62 to $63/b for Brent at that time. Today it's $64/b. basically no change. We went from eight [waivers] to zero. That's the story that should be told and underscored. And why is that? It goes back in large measure to the partnership we have with other producing countries, as well as recognition of the US producer to respond to market conditions.

PLATTS: Based on tanker tracking and what we hear from the market, China remains a significant buyer of Iranian oil. Has this been addressed with the Chinese, perhaps as part of trade deal negotiations?

FANNON: We have frequent communications with a variety of stakeholders both companies and countries, including China. That's as a matter of course. For particular discussions, I can't go into that. Those are confidential diplomatic communications.

PLATTS: Is there an oil price that the Trump administration would like to see? Are you comfortable with current oil prices?

FANNON: One of the virtues of our system is that the US government doesn't have any say in oil prices. We don't have any national oil companies, we don't coordinate volumes of production. What we do is we have thousands of different companies engaged in the oil patch and making independent investment decisions, and they do that because it makes good business sense for them. So what the oil price will be, it's not for us to say. What we do focus on, though, and spend a considerable amount of time on, is to ensure there is a transparent, liquid and free market, and under those conditions, the US producer can respond appropriately. The US energy abundance story is still being told or very much in the first stages, and it certainly has been a considerable contribution to the US economy.

--Herman Wang, herman.wang@spglobal.com
--Edited by Claudia Carpenter, claudia.carpenter@spglobal.com