WASHINGTON (Reuters) - U.S. Energy Secretary Steven Chu said on Thursday that global oil producers appear to have enough spare capacity to make up for Iranian exports curtailed by tough new sanctions.
Chu said it was important that sanctions be used to crimp Iranian oil sales to ensure Tehran does not develop nuclear weapons, despite the release of an Energy Information Administration report this week that showed supply tightness.
“There is spare capacity and we believe -- we’ll see -- but I think there is sufficient spare capacity,” Chu told reporters on Capitol Hill.
Some analysts have said the sanctions are backfiring, driving up oil prices enough to benefit Iran and hurt the global economy.
“The sanctions against Iran are important,” Chu said.
“It would be very destabilizing, I think everybody would agree, if Iran developed nuclear weapons. We’re trying to convince Iran in its best interests not to go in that direction,” he said.
U.S. sanctions on foreign banks that handle Iranian oil payments begin to take effect in June. By the end of March, President Barack Obama will determine whether global oil supplies are sufficient to insist that buyers of Iranian oil significantly reduce those purchases.
Obama, under a law he signed late last year, can offer exemptions to countries that show some effort to cut their purchases from Iran.
Iran maintains its nuclear program is for peaceful purposes and denies it is trying to build nuclear weapons.
“GREEN LIGHT” FOR SANCTIONS - LIEBERMAN
In a report that is part of the new sanctions law, the EIA, an independent arm of the U.S. Energy Department, found that Saudi Arabia has been pumping more oil.
Saudi Arabia, which has the world’s biggest spare oil capacity, has produced an average of 9.7 million barrels per day over the last two months, up 600,000 bpd from the same period last year, the EIA said.
But the EIA also said the cushion provided by that spare capacity was modest by historical standards: 2.5 million barrels per day, compared with an average of 3.7 million bpd a year ago.
There is strong political support from Congress to push ahead. Senator Joe Lieberman, an independent, said the EIA report was a “green light” to implement aggressively the energy sanctions.
“With sufficient spare capacity among global oil producers, there is no excuse for countries and companies around the world not to curtail their purchases of Iranian crude, and thus deny the Iranian regime the financial lifeblood it needs for its illicit nuclear activities,” Lieberman said in a statement.
The Obama administration has come under increasing political fire for high gasoline prices, due in part to tensions in the Middle East.
Chu told lawmakers at a hearing on Thursday that the administration is doing what it can to ease the sting of high prices on consumers and businesses.
Some Democrats have urged the administration to release oil from its Strategic Petroleum Reserves, but Chu declined to comment on how or whether the new analysis from the EIA would affect that decision.
“The president will use whatever tools he has to do what we have to do. We have the SPR option on the table,” Chu told reporters.
U.S. House of Representatives Speaker John Boehner said Obama does not seem to support a release as a way to curb rising gasoline prices.
Republican Senator Lisa Murkowski said the reserves, stored in huge salt caverns, should be saved for real supply emergencies rather than to try to ease prices.
“I understand that tightness in world oil markets and the pressing need for sanctions on Iran leave you in a difficult position,” said Murkowski, the top Republican on the Senate Energy Committee.
“It is critical that we fully enforce our sanctions regime and preserve our strategic stockpiles until we really need them,” she wrote to Obama.
Editing by Dale Hudson and Bob Burgdorfer