EU's Iran Sanctions More Bark Than Bite

NEW YORK ( TheStreet) -- Those old enough may recall the immortal words of Gomer Pyle: Surprise, surprise, surprise. As I wrote in several previous articles, the only impact of oil restrictions placed on Iran is higher costs for Europeans. Fortunately, Washington's foolishness won't likely impact West Texas Intermediate prices. All of Brussels and Washington's actions play right into the hands of China.

Even Japan, one of our strongest allies, has received a "waiver" to ignore the European Union ban and doesn't face banking or any other repercussions for importing Iranian oil. Insuring the oil while on the high seas hasn't proven as problematic as many have suggested either. Japan's parliament recently voted to use the backing of the Japanese government to insure the oil, problem solved.

South Korea appears ready to halt imports; however, halting imports is not based on a desire to help punish Iran, but lack of insurance availability. It's especially ironic that South Korea is otherwise willing to work with Iran given the friendly relationship between Iran and North Korea. If South Korea is willing purchase from Iran and they have as much or more than any European country to lose, why is this ban moving forward?

Up to now, seven countries, including India have received "waivers" from the U.S. to import oil from Iran. India is the second most populated country in the world and is expected to pass China. This whole circus act would be funny if real tax dollars didn't go toward paying the salaries of the many bureaucrats spending time on this issue.

It should be no surprise China is not currently on the list, but that may change. China has several ways to play their hand in this high stakes game of poker. First let's look at the market impact.

Are sanctions driving the price of crude higher, and what companies will win or lose as a result? Based on Untied States Oil Fund ETF ( USO), the market is pricing in zero or possibly less of a premium based on the upcoming sanctions. In U.S. dollars oil is not only oversold technically, it's selling near the lows of 2012. USO is about $2 above the 52-week low also.

Are international oil companies feeling the impact? I looked high and low at Exxon Mobil ( XOM), ConocoPhillips ( COP), Chevron ( CVA), English-based BP ( BP) and French-based Total ( TOT) and cannot find any impact. Maybe it's early, but the market tends to price in future events quickly.

No surprises found -- I reviewed the price action of each company along with the technicals and fundamentals; nothing demonstrates a disruption in the flow of crude or profits. In fact, the main driver impacting crude prices is the total collapse in natural gas prices.

United States Natural Gas Fund ETF ( UNG) is near historic lows. In the Rocco Pendola Option Newsletter, I wrote three weeks ago it was time to get short UNG volatility by selling put options. I also wrote a series of articles about oil and natural gas. (Read my article Natural Gas Will Dictate Oil Prices, Not Iranian Sanctions or OPEC)

Because Iranian oil will likely flow at or near current levels and Iranian oil exports add a relatively small supply compared to the overall market, don't expect much of a move higher in crude prices or in energy stocks.

China has a few more days to secure a waiver from the U.S., but they don't need to apply for one. The U.S. will either have to give them one or ignore the penalties threatened on Chinese banks for noncompliance. What choice does the U.S. have when China is one of the biggest buyers of U.S. debt?

China imports over half a million barrels of oil per day from Iran and if the European sanctions results in China receiving a discount of $5 a barrel, it will go a long way toward lowering the losses of subsidized fuel in the Middle Kingdom. The situation may perfectly set up a Chinese insurance company to enter into the maritime insurance space.

Don't expect it to happen immediately, but after the sanctions become old news and clearly not working, a move by Chinese insurers should be expected. Watch for European shipping-related insurance companies to wind up the biggest losers.

China has energy business interests in Iran and contracts to increase Chinas investments. China knows the U.S. has few options available to "punish" China for not following the marching orders and may simply take this opportunity to flex some muscle.

The situation lends itself perfectly for China to profit. On one hand they can secure oil at a discount, they can test their world influence by testing Europe's and the U.S.'s reaction to noncompliance and, if the ground shifts, China can come forward and agree to reduce imports while saving face internally by not actually following the rules.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

At the time of publication, the author held no positions in any of the stocks mentioned.