Storage facilities and anchored tankers are close to saturation as Iran tries to avoid cutting production from its oil fields, several foreign experts in Tehran say. The IEA said up to 42 million barrels of oil were being kept in the stationary tankers. It added, in its latest Oil Market Report from June 13, that Iranian oil exports could fall further in the second half of this year. It cautioned that its data were preliminary and challenged by Iran “routinely” switching off mandatory tracking devices on its oil tankers.
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Iran disputes the data and insists it is exporting 2.1 to 2.2 mbpd. Asked about the IEA’s numbers, Oil Minister Rostam Qasemi told Tuesday’s edition of the Shargh newspaper: “Those are their figures. For the moment, our exports haven’t gone down a lot.” He also said that “we don’t have a lot of oil (stored) at sea – we are transporting our oil with our own tankers” to several countries. The EU, which up to last year imported some 600,000 bpd, or 20% of Iran’s exports, announced on January 23 it would phase in its embargo which becomes fully effective on July 1.
On Monday, the EU confirmed the embargo would be enforced starting Sunday. Most EU member states have already implemented cuts, with Spain and Greece halting imports in April. Italy, Europe’s biggest importer of Iranian crude (180,000 bpd), is trailing but expected to follow suit within months, as soon as Iran delivers oil to Italian company ENI as reimbursement of a debt of hundreds of millions of euros.
European oil companies such as Shell and Total have suspended their contracts. The EU embargo, imposed to pressure Iran to roll back its controversial nuclear program, is coupled with US sanctions hitting Iran’s financial sector. On Thursday, the US measures will toughen when foreign companies that do business with Iran’s oil sector will be threatened with US penalties unless their countries are granted exemptions on the basis of Iran oil import cuts.
Countries cut oil purchases
Turkey, Iran’s neighbor to the north and its fifth-biggest oil customer, has made its sole refiner, Tupras, agree to trim Iran crude oil purchases by 20% and instead source from Libya. South Africa, another important customer, has also gone with other suppliers. In Asia, which absorbs 70% of Iran’s oil exports, the situation is mixed. India, Iran’s number two customer, has announced an 11% cut to Iran oil imports this year, and South Korea, the third biggest customer, has axed 40% from its Iran input.
Japan, the fourth-biggest customer, slashed Iran oil imports by 65% in April while boosting shipments from Saudi Arabia. But China – the top buyer of Iranian crude – has reportedly recently been bringing its imports back up towards its previous 400,000 bpd level after a dip earlier this year attributed to a row with Iran over prices and payment. Beijing steadfastly refuses to cede to the US pressure.
Even where Iran is still selling its black stuff, repatriating the petrodollars generated – and they amounted to $100 billion in 2011 – is increasingly problematic because of the US financial squeeze. Tehran is now accepting payment in other nations’ currencies, or is resorting to bartering its oil for food and goods. And to ensure oil exports to some destinations, Iran is offering discounts of up to $20 per barrel to countries such as Pakistan, one European oil executive said.
It is even using its own tanker fleet to deliver crude, to get around the problem of cargo insurance posed by the looming EU embargo, according to international oil experts. Another blow to Iran’s vital oil export revenues comes from the price for oil. After a skyrocketing rise to a March peak, prices have tumbled to $90 a barrel for Brent reference crude. Analysts believe they could fall further this year as Europe’s debt crisis deflates the global economy.
That is far from Iran’s predictions that the world would be unable to cope with reduced Iranian oil exports, and that the price would jump to $150 a barrel.
“Iran hopes a price rise will compensate for its lowered exports, but increased production in other countries, especially Saudi Arabia, have allowed a gradual phase-in of the embargo that has not destabilised the market,” one European expert said in Tehran. “Between the cut in exports, the discounts, the payment in local money, and the difficulty in repatriating the cash, the sanctions are starting to cost Iran dearly,” he said.