Greek oil problems

Greek dependence on Iranian oil proves latest headache for EU

Sydney Morning Herald,

18 February, 2012

ATHENS : Add the prospect of running out of oil to the mountain of problems that Greece is already facing.

Iran's threat this week to cut off oil to some European countries before a boycott planned for July would do little harm to the continent's powerhouse countries. But Greece has been heavily dependent on Iran's oil, which it buys on generous terms of credit, crucial when few others trust Greece to ever pay them back.

Greece's need for Iranian oil was the main reason a European Union boycott of Iran, approved in January, was delayed until July, European diplomats said.

And the possibility of a sudden halt amid a catastrophic recession has many Greeks worried, despite European assurances an alternative supplier would be found.

''It's not a coincidence that Iran is targeting Greece right now, because Greece is the weak link of the European Union,'' Georgios Filis, a lecturer in international business at The American College of Greece, said. ''We're going to find ourselves in a very desperate situation.''

Whether the cut-off happens now or in July, the new suppliers will almost certainly be less generous with Greece, driving up petrol and heating oil prices and further dampening the country's economy as the government struggles to reduce debt and fight unemployment that has soared to 21 per cent.

EU regulations require member countries to have a 90-day supply of oil on hand, so Greece would be able to hold out for some time while a new supplier, most likely Saudi Arabia, was lined up to fill the hole a boycott of Iranian oil would create.

Greece imports about a third of its oil from Iran, about 100,000 barrels a day, the chief economist of London's Centre for Global Energy Studies, Leo Drollas, said. Other oil suppliers want credit drawn from foreign banks, not Greek ones, because of the risks of the latter collapsing, he said.

''It essentially means pre-paying for the oil,'' Dr Drollas said. ''A very large crude carrier carries 2 million barrels of oil. For a refiner to have to pre-pay, that would cause havoc with its cash flow.''

Reaction elsewhere in Europe to the Iranian oil threat was muted, because most countries have already reduced their imports and few were deeply dependent on Iran's oil in the first place.

Oil is not the only energy need that has led Greece towards countries that, at times, use supply cuts as a political weapon. Greece's natural gas demands have recently sent it towards Russia, which has severed supplies to Ukraine and others during disputes.

Europe has sought to become less dependent on Russian natural gas, with mixed results.