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EU Embargo on Syrian Crude Likely to Hurt Italy Most

Although the document only covers one month of Syrian petroleum exports, it provides a recent snapshot of ordinarily confidential trading activity in which European oil companies Repsol SA and Royal Dutch Shell PLC loaded Syrian crude, and Trafigura and Total SA loaded Syrian oil products in July.

AUGUST 26, 2011

By BENOIT FAUCON And KONSTANTIN ROZHNOV

LONDON—A shipping document suggests a European Union embargo on Syrian crude oil—expected to be finalized next week—would hit Italy hardest, even as the southern European country continues to make do without Libyan crude.

Nearly half of the crude oil exported by Syria ended up in Italian ports last month—the equivalent of about 55,132 barrels a day out of 110,521 barrels a day of total Syrian oil shipments, according to a Syrian ports document. Italian oil giant Eni SpA and refiners IES Italiana and Saras SpA said they do refine some Syrian crude as part of a broader slate of oil grades.

Although the document only covers one month of Syrian petroleum exports, it provides a recent snapshot of ordinarily confidential trading activity in which European oil companies Repsol SA and Royal Dutch Shell PLC loaded Syrian crude, and Trafigura and Total SA loaded Syrian oil products in July.

International traders Arcadia Petroleum Ltd., Petraco Oil Co. Ltd. and oil company OMV AG loaded all the crude that went to Italian ports last month, the document shows.

Italian refiners and government officials said the country can cope without Syrian crude, but it could cost them more to find substitute crudes. The Syrian oil-export ban could also lend additional upward support for oil prices more broadly as European refiners seek out more alternative sources following the lengthy Libyan outage.

“European refineries are already grappling with the loss of Libyan crude,” Barclays Capital said in a note last week. “Given that one half of Syria’s key production stream is the sweet and lighter Syrian Light grade, any loss in Syrian crude volumes can significantly jeopardise European refinery operations.”

The EU has condemned Syrian President Bashar al-Assad following recent violence and announced a series of sanctions against the government and senior officials there. The EU next week is expected to finalize a plan to extend sanctions on Syria to cover oil exports to the EU, an EU official said Tuesday. EU officials didn’t return a request for comment Thursday.

Apart from Italy, the Syrian port document shows Syria exported crude and products to Spain, France and Turkey, among others. And a representative for OMV, who declined to comment on the list of Syrian loadings, said that 7.8% of the 7.8 million metric tons of oil refined at the company’s Schwechat refinery in Austria last year came from Syria.

But with four out of eight Syrian tankers last month going to Italy, the list confirms data from trade association Unione Petrolifera, which shows Italy has been increasingly making up for lost Libyan crude with oil from other risky countries, from Syria to Iran.

Between April—the month Libyan oil disappeared from the Italian market—and May, Syrian sales to Italy rose by 30% and Iranian sales to Italy rose by 56%, according to Unione Petrolifera. While European oil companies are barred from producing oil in Iran, purchases of Iranian crude are legal in Europe.

Prior to the Libyan unrest, Italy imported about a quarter of its oil from Libya.

On Thursday, Eni’s Chief Executive Paolo Scaroni said he expects Libyan oil exports to resume in six to 18 months.

A person at refiner IES Italiana, who said it bought Syrian oil last month, said a “stoppage [from the Arab nation] could have an impact,” and it may have to pay more for replacement crudes as a result.

A trader in the Mediterranean oil market said Syria’s heavy crude was also widely used to produce bitumen for construction and road maintenance.

Yet Syrian imports remain only a small part of the roughly 1.3 million barrels of oil Italy imports every day, and government officials and refiners in the country say they can cope.

“Italy does not think that the embargo on Syria will have a significant impact on our economy,” an Italian foreign affairs ministry spokesman said.

An Eni representative said Syrian crudes are used for no more than 3% of its crude throughput and a potential ban on these imports “should not have important consequences for our production.”

Representatives for Repsol and Trafigura declined to comment on the Syrian shipping document, but said their companies comply with all international trade regulations. Syrian oil officials couldn’t be reached for comment. Shell and Petraco Oil declined to comment, and Total and Arcadia couldn’t be reached for comment.

—Ilan Brat in Madrid, Stacy Meichtry and Giada Zampano in Rome, Iman Dawoud and Alexis Flynn in London, Laurence Norman in Brussels and Nicole Lundeen in Vienna contributed to this report.

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