Effect of Ship Fuel Sulfur Reduction Law on Iranian Oil Price (IMO Law)

In recent decades, the increase of pollution from consumption of oil and petroleum products has led to development of many environmental laws. It is important for Iranian policy makers to be informed about the impact of such laws on oil prices, given the dependence of the country’s budget on oil revenues. Under a new International Maritime Organization regulation passed in mid-2016, ships are required to use fuel with a maximum of half percent sulfur from the beginning of 2020. The rule reduces the demand for high-sulfur fuel oil products and increases demand for sweet crude oil for the production of low-sulfur products. The present study tested the effects of the rule on the price of benchmark Iranian oil prices, using the method of simultaneous equation system and daily time series data for the period 2010 to 2019. The results show that the rule has had a positive impact on Brent crude oil price and reduced the price of sour (Urals) crude in the Mediterranean market. This reduction in Urals crude price will lead to a reduction in the price of Iranian crude oil, which is among sour crude oils.