Alaska senator says U.S. sale of emergency oil may have violated Iran sanctions *updated*

The U.S. may have violated sanctions against Iran when it sold 30.6 million barrels of crude from its emergency stockpiles earlier this month, Sen. Lisa Murkowski, R-Alaska, said today.

At the root of the alleged violation is the Department of Energy’s decision to sell four million barrels of oil to the Dutch-Swiss energy trading company Vitol, in light of recent energy trade publication reports that suggest the company is resuming business with Iran.

According to Murkowski, Argus just reported that Vitol signed a confidentiality agreement with the Iranian government, and last month, IHS Global Insight said the company had inked a deal to resume supplying northern Iran with crude from Turkmenistan in exchange for oil from an Iranian port in the Persian Gulf. Even before the recently reported agreements, Vitol was Iran’s key petroleum fuel supplier until mid 2010.

Murkowski said the potential deals cast new shadows over the U.S. sale of oil from its Strategic Petroleum Reserve and raises fresh questions about whether Vitol was eligible to bid on the crude, given its “well-known ties to a country that has repeatedly called for the destruction of the United States and its allies.”

“If Vitol is doing business with Iran — directly or indirectly — the administration needs to revisit whether Vitol was an appropriate and lawful purchaser of SPR oil,” said Murkowski, the top Republican on the Senate Energy and Natural Resources Committee.

Murkowski sent a letter to President Barack Obama asking for an explanation of Vitol’s eligibility and how the sale did not violate the Iran Sanctions Act.

An Energy Department spokesman said Vitol’s eligibility was vetted before the company’s bid on the reserve oil was accepted.

“Prior to the completion of the purchasing agreement, we reviewed the deal to confirm that Vitol is not engaged in activities that would result in sanctions, including under the Iran Sanctions Act,” said spokesman Damien LaVera. “We are committed to implementing the law and believe we have done so in this case.”

Under the United States’ Iran sanctions, American companies are generally barred from exporting U.S. goods and services to the country. An executive order signed by former President Bill Clinton in 1995 also bars the U.S. from being involved in petroleum development in Iran.

However, purchases and sales of Iranian crude oil and natural gas are not subject to sanctions under the Iran Sanctions Act.

Administration officials said the decision to sell off the emergency oil was designed to restore stability to the market and offset the loss of 1.5 million barrels of high-quality light, sweet crude oil daily from Libya during the summer driving season.

But Republicans blasted the move as politically motivated. And other critics noted that nearly half of the oil sold in the SPR sale went to energy traders — not refiners or other end-users of the crude. For instance, traders who nabbed some of the emergency oil included Barclays Bank, Trafigura AG and JP Morgan.

Under Vitol’s deal with the Energy Department, the company is set to buy four million barrels for approximately $432 million.

The government does not bar successful bidders from storing oil for later use or resale, and traders are eligible to purchase the SPR crude. But the government does prohibit the winners from exporting any of the stockpiled crude unless they return an equal volume of refined product to the U.S.

Although the Obama administration’s announcement about the SPR sale initially sent oil prices downward, Murkowski noted that the cost of crude has since rebounded. Selling SPR oil to traders doesn’t help “American drivers,” she said.

“The only real winners in this sale were the traders, who will sell the oil back to American refiners at a profit,” Murkowski said.

Murkowski letter to Obama on SPR sale to Vitol and Iran sanctions

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