Iran's oil exports suffer as US sanctions bite
By Margaret McQuaile
December 6, 2012 - Iran is considering basing its budget for the year beginning in March
2013 on a crude export volume of just 1 million b/d.
This may turn out to be a prudent move in view of the likelihood that
the market for its oil will shrink further next year as top Asian consuming
countries reduce further their crude imports from the Islamic Republic in
exchange for continued access to the US financial system.
The United States on June 28 this year brought into force financial
sanctions barring the banks of countries continuing to deal with Iran's
central bank from the US financial system.
But by the time the measures came into effect, Washington had given
exemptions to all of Iran's top oil customers outside the European Union,
which had banned the import of Iranian oil from July 1, in exchange for what
it called "significant" cuts in their crude purchases from Tehran.
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The exemptions, granted for 180 days, run out on December 7-8 for seven
of those countries -- India, Malaysia, South Africa, South Korea, Sri Lanka,
Turkey and Taiwan.
Japan, the first Asian country to win an exemption, in September won an
extension for a further 180 days. China's exemption expires in late December.
The combined EU and US sanctions have had a devastating effect not only
on Iran's oil exports but also on its economy, which has seen the value of
the riyal nosedive against the US dollar and other leading international
As well as banning the import of Iranian oil and more recently natural
gas, the EU has also banned the provision of crucial EU-linked insurance
cover for any ship carrying Iranian oil, regardless of destination, a move
which had a dramatic initial impact in Asia and continues to overshadow the
region's oil trade with Tehran.
Japan, for example, did not import a single barrel of Iranian crude in
July when, according to the International Energy, Iran found homes for just
930,000 b/d of its crude.
Before the US and EU sanctions came into effect, Iran had been exporting
around 2.2 million b/d of crude.
Of this volume, some 600,000 b/d had been moving to Europe and the
remaining 1.6 million b/d to Asia, including Turkey.
Platts estimates that imports of Iranian crude by China, India, Japan,
South Korea, Taiwan and Turkey fell to around 1.27 million b/d in the first
months of this year from around 1.61 million b/d in the same period of 2011,
a drop of some 340,000 b/d year on year.
The US has not defined -- publicly, at least -- baselines for the cuts.
This has resulted in some speculation about the time periods against which
volume comparisons should be made. It also gives Washington a great deal of
flexibility in deciding whether a country should be granted a further
exemption from the sanctions.
What US officials have made clear, though, is that a country seeking a
further 180-day exemption from financial sanctions must reduce further its
purchases of Iranian oil.
Washington's objective is to obtain a series of progressive cuts in
Iran's crude exports with the eventual goal of halting exports altogether in
a bid to persuade Tehran to cooperate with the international community on its
controversial nuclear program.
The West suspects the program is aimed at building atomic weapons but
Iran insists it is aimed solely at generating electricity.
The importers whose exemptions from the US sanctions expire at the end
of this week have seemingly complied with Washington's terms.
Turkey's deputy Prime Minister, Ali Babacan, said on December 2 that the
country had already cut its imports of Iranian oil by 20% and planned a
further 20% reduction in order to roll over its exemption. At times before
the sanctions, Turkey had relied on Iran for more than half of its crude
"According to my understanding, meetings have been held and a further
20% reduction will be made. Now Tupras will meet with [the US authorities]
and will try to buy crude from other countries," Babacan said, quoted by
Turkish daily Yeni Safak. Tupras is Turkey's sole refiner and crude importer.
Turkish crude imports from Iran in October, the latest month for which
official figures are available, averaged just 75,280 b/d, 32% lower than the
110,300 b/d imported in September and 66% down from the 221,550 b/d imported
in August. The percentage of Turkish crude imports coming from Iran in
October fell to 18% from 25.8% in September and 44.7% in August.
South Korean optimism
South Korea is also optimistic about extending its exemption for a
further six months, according to officials at the Ministry of Knowledge
Economy, which is responsible for the energy, industry and commerce sectors,
and the Foreign Ministry.
"It is very positive for South Korea to obtain an extension of the
waiver because we have reduced Iranian crude oil imports as requested by the
US," Chung Jong-Young, chief of the MKE's American department, said. South
Korea will maintain a reduced level of imports from Iran in line with US
sanctions on Iran, he said.
"There would be no problem in extending the waiver as South Korea has
significantly reduced oil imports from Iran," said Lee Byung-Doo, chief of
the North American Department of the Foreign Ministry.
Neither, however, would discuss the issue in any detail, saying the
extension was up to Washington.
South Korea's crude imports from Iran over the first 10 months of this
year fell by 38.6% year on year to 45.55 million barrels from 74.23 million
barrels over the January-October period of 2011.
Chung of the MKE, meanwhile, warned that the US Senate's approval of new
sanctions on Iran's energy and shipping sectors could be problematic for
"It could deliver a blow to South Korea's industry, but the new package
keeps in place the exemptions for countries that have made significant cuts
of Iranian crude purchases," Chung said.
Taiwan is also expecting to have its exemption renewed -- not surprising
given that the country has imported no Iranian barrels since March.
"We have confidence in getting a new waiver," an official with the
Bureau of Energy at the Ministry of Economic Affairs said Wednesday.
This official had previously told Platts that refiners CPC Taiwan and
Formosa Petrochemical were likely to resume Iranian crude imports before the
end of this year, suggesting at the time that Taiwan's total import volume
from Iran this year could be in excess of 8 million barrels but that this
would still be lower than normal.
The latest official trade data show that between January and September
this year Taiwan imported just 4.92 million barrels -- all in the first
quarter -- or an average 17,956 b/d over the entire nine-month period. This is
almost half the 9.079 million barrels, or 33,256 b/d, imported over the same
nine months of 2011. Over the full calendar year 2011, Taipei's total volume
of crude from Iran last year totaled 11.04 million barrels, significantly down
from the 21.4 million barrels of 2010. CPC accounted for 7.58 million barrels
of the 2011 volume.
India's imports from Iran have fluctuated from month to month, partly
because of the shipping cover hurdle, although the Iranian state tanker
company NITC is now regularly delivering cargoes to Indian refiners.
Contractually, Indian refiners are scheduled to import just 10.5 million
mt of Iranian crude oil in the current fiscal year which began in April and
ends in March 2013.
That is 40% less than the 17.5 million mt imported from Iran in the year
to end-March 2012.
It's also less than the 15.5 million mt of Iranian oil that junior oil
minister R.P.N. Singh said in May would be imported during the current fiscal
India is currently receiving average volumes of around 250,000-255,000
b/d of Iranian crude, mainly on NITC vessels. In the early part of the year,
volumes from Iran had been around the 300,000 b/d mark.
Sri Lanka, meanwhile, may not have been Iran's biggest crude customer but
until the sanctions had relied on the Islamic Republic for more than 90% of
its crude supply.
Deputy oil minister T.M. Sirisoma said on Wednesday that Sri Lanka
expected to have its exemption renewed, having cut its term volumes from Iran
to 10 cargoes of 135,000 mt each in 2012 from 13 the previous year.
In fact, Sirisoma added, the country has even had difficulty importing
all of the lower 2012 volumes because of payment issues and has been looking
at alternative supply from Qatar, Oman and Saudi Arabia.
South Africa, which had relied on Iranian crude for 25% of its
requirements, suspended oil imports in June, and is most likely to qualify
for a renewal, industry experts said Thursday.
Monthly statistics from the South African Revenue show that the country
now receives the bulk of its oil from Saudi Arabia, with Angola and Nigeria
Petrochemicals and energy giant Sasol halted oil imports from Iran in
February and is sourcing alternative supplies from Saudi Arabia and the spot
market, a company spokesman said Wednesday. The group had relied on Iranian
oil imports for 20% of its crude requirements, or 12,000 b/d, at its Natref
Engen, which operates the country's second biggest refinery, halted
imports of Iranian crude several months ago but has declined to say how it is
diversifying its crude oil sourcing. It said this week it was monitoring
developments on its application for a further exemption from the US sanctions.
A unit of Malaysian state-owned oil company Petronas, Engen had been
buying around 80% of supply for its 135,000 b/d refinery in Durban from Iran.
China has not publicly sought an exemption from the US sanctions,
repeatedly stressing its opposition to unilateral measures, but was declared
by Washington just before the sanctions came into effect to have
significantly reduced its crude imports from Iran.
Despite its insistence that it does not recognize sanctions outside
those imposed by the United Nations, China has reduced its crude imports from
the Islamic Republic.
In 2011, China's monthly crude imports exceeded 2 million mt except in
February and August when they slipped to 1.92 million mt and 1.96 million mt
respectively. In July 2011, China imported 2.75 million mt.
This year, volumes have fluctuated month on month but have been above
the 2 million mt level only three times -- in January (2.08 million mt), May
(2.22 million mt) and June (2.6 million mt).
Since July, when the sanctions came into full force, volumes have held
steadily below the 2 million mt level.
Over the July-October period this year, China imported 7.02 million mt,
or an average of around 418,346 b/d, compared with 9.3 million mt or 554,110
b/d during the same four months of 2011.
Over the first six months of this year, China imported a total 8.12
million mt, or 326,913 b/d, of Iranian crude compared with 10.81 million mt,
or 437,944 b/d, in the same period of 2012, a drop of more than 111,000 b/d.
Latest trade data from China's General Administration of Customs show
that over the first 10 months of 2012, Chinese imports of Iranian crude fell
to 17.73 million mt, or 426,101 b/d, from 22.77 million mt, or 549,115 b/d,
in the same 10 months of last year.
On the basis of these consistently lower comparisons alone, it's highly
likely that the State Department will extend China's exemption when it comes
up for renewal later this month.
Broader US sanctions
Countries which have their exemptions renewed will be protected from an
amendment to the current US legislation that would broaden the sanctions to
institute more sweeping bans on dealings with Iran's ports and shipbuilders
and would prevent Iran from circumventing sanctions on its central bank by
receiving payments for energy sales in precious metals instead of cash.
An amendment to the bill that brought in the current financial
sanctions, passed by the Senate on November 30, would designate Iran's
energy, ports, shipping and ship-building sectors as "entities of
proliferation concern" and ban all dealings with them. The final bill must
still go to a conference committee to be reconciled with an earlier version
passed by the House of Representatives.
Several groups that have been pushing for more stringent sanctions have
said that previous attempts to ban dealings with specific companies operating
Iran's ports have been thwarted by Iran simply renaming those companies. The
new sanctions would be broader and ban all dealings with the sectors rather
than specific companies operating within those sectors.
Under this provision, the US would "block the property" of any third
party that engages in transactions with any of the sanctioned sectors.
The amendment would also impose sanctions on persons selling commodities
that are essential to Iran's shipbuilding and nuclear sectors, such as
graphite, aluminum, steel, metallurgical coal and software for integrating
Next article: New EU sanctions blacklist Iran's NIOC, NITC, NIGC, other firms