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Greece Turns to Iran for Oil as Credit Shut Down Elsewhere; EU Considers Oil Sanctions on Iran
Greek suppliers concerned about the potential default of Greece have shut off financing for oil. In turn this has caused Greece to turn to Iran. However, the EU is now threatening to impose more sanctions on Iran over nuclear issues. If the EU acts that stupidly, the Greek economy will shut down.
Please consider Greece turns to Iranian oil as default fears deter trade
Nov 11, 2011 Traders said Greece has turned to Iran as the supplier of last resort despite rising pressure from Washington and Brussels to stifle trade as part of a campaign against Tehran's nuclear program.
The near paralysis of oil dealings with Greece, which has four refineries, shows how trade in Europe could stall due to a breakdown in trust caused by the euro zone debt crisis, which is threatening to spread to further countries.
More than two dozen European traders contacted by Reuters at oil majors and trading houses said the lack of bank financing has forced Greece to stop purchasing crude from Russia, Azerbaijan and Kazakhstan in recent months.
Greece, with no domestic production, relies on oil imports and in 2010 imported 46 percent of its crude from Russia and 16 percent from Iran. Saudi Arabia and Kazakhstan provided 10 percent each, Libya 9 percent and Iraq 7 percent, according to data from the European Union.
"They are really making no secret when you speak to them and say they are surviving on Iranian stuff because others will simply not sell to them in the current environment," one trader in the Mediterranean said"(snip)
(snip)"Economic Insanity
Banning Iranian oil would be the kiss of death for the Greek economy and economic insanity in general for Europe. Given the oversupply of economically insane ideas lately, it is difficult to predict the outcome.
Mike "Mish" Shedlock "(snip)
From a purely economic standpoint, there are lots of very instructive take-aways from this article ...
- Greece, like the vast majority of countries, isn't 'vertically integrated'. This means that it lacks domestic capability at some stage of the production chain and must depend on imports to fill the gap. The specific topic of this thread is no Greek crude oil production to feed Greek refineries, but in a larger view this could also apply to strategic minerals, to food, to certain manufacturing processes etc.
- Because of a lack of 'vertical integration' ( i.e. having all of the necessary domestic capabilities to get from supplying a raw material to manufacturing a needed end product ), Greece and the vast majority of countries are extremely dependent on continuing global trade to fill their gaps.
- Global trade, with certain limited exceptions, depends on the participation of the world's major banks and gov't financial institutions to 'broker' such trades ... from supplying credit to effecting currency exchange to insurance against potential losses ( i.e. that the purchased oil / food / minerals / whatever will actually be delivered as promised)
- Because Greece has failed to get their 'act together' re gov't spending cuts, tax increases, etc. mandated by the EuroZone as condition of the Greek bailout, the world's major banks and gov't financial institutions have now begun to balk in terms of providing Greece / Greek businesses the necessary additional credit and other services to execute international trades. As pointed out in the article, one immediate effect is 'depriving' Greece of it's normal imported crude oil supply. The repurcussions of this will be major and quick ... a widespread shortage of gasoline, diesel fuel, heating oil, propane gas, and other refining products etc. throughout Greece, and vastly increased prices for whatever gasoline, diesel fuel etc. remains available in Greece from whatever source.
- The resulting fuel shortages and major energy price increases will quickly force Greek industries to shut down ( throwing remaining Greek workers in the unemployment line ), and Greek businesses will attempt to enact massive price increases in an effort to recoup their suddenly increased costs of operation.
- In the midst of this, one and only one crude oil supplier to Greece, Iran, has stepped up and agreed to enter into direct transactions for the sale of crude oil to Greece. This circumvents the world's major banks and gov't financial institutions.
- From a standpoint of everyday priorities for Greek individuals, Greek businesses, Greek industries etc., making sure that a continuing direct flow of available Euros to Iran continues ( translating into a continuing flow of Iranian crude oil thus a continuing flow of gasoline, diesel fuel etc. also continues ) will have a FAR higher immediate priority than directing available Euros to Greek bondholders / the world's major banks / gov't financial institutions etc. This in turn greatly increases the near term risk of Greek default ( thus investor / bank losses )
- While the stated reasons may indicate otherwise, Greek bondholders, the world's major banks, gov't financial institutions etc. who hold / guarantee large amounts of Greek debt CANNOT accept the setting of this precedent ... i.e. that the limited number of Greek Euros will first be spent purchasing crude oil, food, and other basic necessities, directly from global suppliers -, with Greece's financial creditors then relegated to a 'second tier' repayment priority ( if there are in fact enough remaining Greek Euros to make payments towards Greece's financial debts at all )
- Greece's financial creditors may be forced to go to EXTREME lengths in order to halt this 'bypassing' of international financial 'controls' of Greece's foreign trade.



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