Oil prices were in decline today as frustration with the inability of Greek policymakers to agree on a deal to impose further budget cuts reduced demand for riskier assets. Greece needs to pass more austerity measures to secure the much needed €130 billion bailout from the Troika of lenders – the EU, the IMF and the ECB - and avert bankruptcy.
Greek policymakers today failed to agree on another round of austerity measures, which is demanded by Greece’s official lenders as a condition of the next financial aid package. It was reported that the government had a deadline of noon to respond to Europe’s demands, however, this was denied by Greek officials. Prime Minister Lucas Papademos and other leaders of the ruling coalition are set to resume negotiations tomorrow.
Papademos’ partners oppose the proposed cuts, warning that reductions in wages and pensions could ultimately lead to social unrest. However, if the Troika opts not to provide further aid to the debt-ridden nation, it will likely go into a default as soon as in March when it faces a deadline to repay €14.4 billion.
A Greek default could have disastrous consequences for the European economy, reducing its energy demand and oil imports. In the meantime, Iranian oil minister Rostam Ghasemi said on Saturday that Iran could stop supplying oil to Europe immediately in response to the embargo imposed by the at the end of last month.
Europe planned to reduce its dependence on Iranian oil gradually and stop importing crude from the Middle Eastern country, which is accused of illegally developing a nuclear weapon, by July to have enough time to find new suppliers and prevent a sharp hike in oil prices. Iran has previously threatened to cut off oil supplies, but a vote on the proposal was delayed a week ago.
It was also reported that the world’s second largest energy consumer China aims to further reduce oil imports from Iran. A Reuters report quoted sources in China’s oil industry, who said there would be another cut in imports from Iran in March, which have been reduced by 285,000 barrels of oil per day due to a dispute over pricing.