EU’s Iran embargo to raise pressure on Irish motorists

Just weeks after the budget, motorists face another hike in fuel prices after the EU imposed an oil embargo on Iran.

The sanctions over Iran’s nuclear programme involve an immediate ban on all new oil contracts with the Gulf state, while existing contracts will be honoured until July 1. The EU buys about 20% of Iran’s oil exports — more than 600,000 barrels per day.

In response, Iran threatened to close the Strait of Hormuz, the Persian Gulf passageway through which 35% of the world’s tanker-borne oil exports travel from Saudi Arabia, Iran, Iraq, the United Arab Emirates, Qatar and Kuwait.

The markets reacted immediately, with a barrel of oil rising by more than 1% to just under $111 a barrel by lunchtime yesterday.

Tanáiste Eamon Gilmore acknowledged the potential impact on fuel prices but said the move was justified.

“While this is clearly an issue for consumers, the expected price increase has to be weighed against the seriousness of the problem of Iran’s nuclear programme,” he said.

Even before the embargo threatened to drive prices up, motorists here were having to bear the brunt of a major rise in their fuel bill.

The cost of a litre of petrol rose by 7c between December and January, one of the highest monthly increases ever experienced.

The budget added 1.4c in carbon tax for petrol and 1.6c for diesel. It also added 2% VAT on January 1. The rest of the increase was as a result of moves in international exchange rates.

Of the total 154.9c petrol price, the Government takes 90c, or 58%. The wholesaler gets 8c per litre and the retailer just 4c.

The hikes mean that motorists clocking up a conservative 12,000 miles per year in their family saloon can expect to pay €1,100 per year, or almost 10c per mile, more than they were just 10 years ago.

Diesel motorists are also being penalised by the rising cost of fuel. Compared to the rest of Europe, the price of a litre of diesel in Ireland is one of the highest at 153.1c. Like petrol the cost has risen sharply over the last decade. In 2002, a litre would have cost 75.3c.

AA Ireland spokesman Conor Faughnan said he believes the impact of the embargo could be relatively small, as Europe will have ample time before July to source oil products from other producer countries.

He said the rise on the markets could be a blip reaction, but if that was sustained prices could increase.

However, Mr Faughnan pointed to the eurozone financial crisis as the main reason for the rise at the pumps.

The euro’s weak performance against the dollar has driven up the cost, as has the stockpiling of oil by large investment funds as a safe investment.