Intense negotiations led to SA's exemption from US oil sanctions

Friday, June 15, 2012

Pretoria - It was through intense negotiations that South Africa was exempted from the US crude oil sanctions on Iran, Minister in the Presidency responsible for Performance Monitoring and Evaluation, Collins Chabane, said on Friday.

Briefing reporters on Friday after Cabinet's meeting this week, Chabane confirmed that the country, together with six other economies, had been exempted from the sanctions imposed on Iran.

The US on Monday said that South Africa had significantly reduced its oil imports and that it would be exempted.

At the end of 2011, US President Barack Obama signed a bill expanding US sanctions against Iran to cover its central bank and financial sector; a move that allows penalties on foreign banks that settle oil imports with the Iranian central bank.

The European Union followed suite and put a ban on the provision of insurance and reinsurance by EU insurers to Iran and Iranian-owned companies. Additionally, the EU decided to ban new contracts to import petroleum and petroleum products from Iran and to end existing contracts by 1 July 2012.

"The sanctions impact negatively on the long term sustainability of South Africa's refining sector due to increases in both the capital and operational costs to alter the crude diets for the respective refineries," noted Chabane.

The Department of Energy's Director General Nelisiwe Magubane said there was no indication of compensation required by South African companies as a result of the sanctions.

South Africa applied for an exemption from the US government and on Monday the US Secretary of State Hilary Rodham Clinton announced that South Africa, together with countries like Malaysia, Sri-Lanka and India had been granted the exemptions by the US from the sanctions.

The sanctions will not apply to South African financial institutions which transact with the Islamic Republic of Iran for the 2012 fiscal year. The exemption period is a 180 days and is potentially renewable. Additionally, the exemption is only applicable to petroleum based transactions.

"This followed intense negotiations between South Africa and the United States of America," noted the minister.

Adding to the minister's comments, Magubane said the sanctions would not only impact the South African economy but would also impact on South Africa's neighbours.

She said South Africa will be looking to the African continent to source oil while Chabane said the country was working on alternatives to diversify South Africa's sourcing of oil. "That programme is still continuing," said Chabane.

South Africa sources about 30% of its crude oil from Iran.

When coming to the EU, similar discussions are being held. "On the EU, similar discussions are taking place in Moscow ... we are hoping for a breakthrough," said Magubane.

On Wednesday, the Department of Energy said the EU sanctions against Iran were a hurdle because unlike the US, the EU legislation did not give provision for any exception.

"Although the US granted the exception, the EU sanctions will make it impossible for importation of crude oil from Iran due to the ban on the provision of insurance and reinsurance by EU insurers to the State of Iran and Iranian owned companies," said the department.

Magubane explained further that the EU did not have a clause for exemption. "Most of the companies that offer insurance are within the EU. There is no provision for that in their legislation," said Magubane.