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Friday, March 30, 2012 - 16:25

White House Confident No Adverse Result From Iran Oil Limits

--White House: Iran Concerns Fueling Demand For Non-Iran Crude Oil
--White House: Tightness Remains In Oil Market
--Obama Says Enough Oil Supply To Proceed With Iran Penalties
--Sr Admin Offl: Increased US Oil Production A Factor In Obama Decision

WASHINGTON (MNI) - The Obama administration is confident that tough new sanctions that will take a significant chunk of Iranian crude off the oil market are being implemented and assessed in a manner that will ensure there is no adverse impact on the global economy.

President Barack Obama's announcement earlier Friday that he believes there is enough supply to move ahead with sanctions on Iran's oil exports,

The White House noted the February EIA report indicating the oil market became increasingly tight over the first two months of 2012, and "that tightness remains today."

"A series of production disruptions in South Sudan, Syria, Yemen, Nigeria, and the North Sea have removed oil from the market," the White House acknowledged. "In addition, international concerns over Iran's nuclear activities and recent steps taken to reduce the amount of Iranian crude oil and petroleum product imports are contributing to an increased demand for non-Iranian crude oil."

"Nonetheless, there currently appears to be sufficient supply of non-Iranian oil to permit foreign countries to significantly reduce their import of Iranian oil, taking into account current estimates of demand, increased production by some countries, private inventories of crude oil and petroleum products, and available strategic petroleum reserves and in fact, many purchasers of Iranian crude oil have already reduced their purchases or announced they are in productive discussions with alternative suppliers," it added.

Speaking to reporters during a conference call, a senior administration official said Obama's decision took into account increased production from Iraq, Libya and within the United States.

"We have made notable progress in increasing domestic oil production, not only over the last couple of years, but ... projected oil production in the United States is on the rise as well," he said.

With regards to a possible release from the Strategic Petroleum Reserve, the official would only say that all options remain on the table and no decision has been made on any specific action.

The combination of the new U.S. sanctions, reduced oil buying by countries such as Japan, and the EU sanctions that will take effect at the end of June mean "a significant amount of Iranian oil will no longer purchased on the market," he said.

The new sanctions, part of the National Defense Authorization Act passed by Congress in December, penalize foreign corporations or other entities that purchase oil from Iran's central bank, which collects payment for most of the country's energy exports. The sanctions are meant to pressure Iran to curb its nuclear program.

Obama was required by the law to decide by March 30, and every six months after, whether the price and supply of non-Iranian oil is sufficient to allow for countries to cut their oil purchases from Iran.

Explaining his decision in a memorandum, Obama said that "after carefully considering the report submitted to the Congress by the Energy Information Administration on February 29, 2012, and other relevant information, and given current global economic conditions, increased production by certain countries, the level of spare capacity, and the existence of strategic reserves, among other factors, I determine ... that there is a sufficient supply of petroleum and petroleum products from countries other than Iran to permit a significant reduction in the volume of petroleum and petroleum products purchased from Iran by or through foreign financial institutions."

"I will closely monitor this situation to assure that the market can continue to accommodate a reduction in purchases of petroleum and petroleum products from Iran," Obama added.

The senior administration official told reporters the government is engaged in a concerted effort "to implement these sanctions in a responsible way that effectively targets the Iranian government while mitigating other effects."

For instance, he noted that the European Union and Japan -- who cooperated with the United States by voluntarily reducing their purchases of Iranian crude -- have been issued exemptions from the new sanctions on Iran.

"We are continuing to consult with other countries about their potential reductions in the purchasing of Iranian crude oil" the official said, adding other countries still have the opportunity to take steps that would gain them exemptions as well.

As an example, he said U.S. has had "constructive" discussions with South Korea about steps they can take to reduce their reliance on Iran oil. "They've indicated an interest in doing so," he added.

As for the major consumers of Iranian crude, the official said China and India are two countries that the U.S. continues to have a dialogue about their ability to reduce oil imports from Iran.

"I would note that while we continue to pursue reductions, what we also have not seen is ... back filling by the Chinese, whereby they make up the difference in Iranian oil that's come off the market in other places by increasing their economic relationship with Iran," he said.

Echoing Obama's statement, the official said the White House will continue to monitor global oil markets, as well as developments in crisis-hit oil producers, "quite closely."

** MNI Washington Bureau: 202-371-2121 **

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