iten

Iran determined not to let oil sanctions affect trade

As Washington and its allies tighten the screws on Tehran over its nuclear programme, Iran is coming up with new ways to sell its oil – offering special deals to allies China and India, delivering oil to clients and swapping it for gold and grain. Tehran may also be devising ways to make its oil more saleable on international markets, switching it between tankers and blending crudes to disguise the origin, oil trading and shipping sources have told Reuters. They spoke on condition of anonymity because of the sensitivity to business relationships.

Washington, London and Brussels are doing their best to put up obstacles, but Iran is market savvy, these traders said, describing a number of ways Iran can avoid sanctions and continue to get its oil to market. Such routes mean selling oil at a discount, which will hurt Tehran’s income but could also prove highly profitable for customers and the middlemen involved.

 “The Iranians are very enterprising and can probably out-smart all of us,” said an executive at a major oil company. Tehran has been manoeuvring for years as Iran’s senior oil executives were reworking the oil books back in 1995, when Washington banned 600,000 barrels per day (bpd) of Iranian crude liftings, in an attempt to curb Tehran’s drive to acquire nuclear weapons. Oil was then around $18 a barrel but is now above $120.

Seventeen years on, Iran’s oil elite, with their every move under scrutiny from the West, face a far tougher test as they aim to keep up shipments of 2.3 million bpd. They are scrambling to find new homes for 500,000 bpd of oil sales as rigorous U.S. financial measures and a European Union oil ban, effective July 1, make it ever more difficult to pay for and ship oil from Iran.

But Leonid Fedun, a key shareholder in Russia’s Lukoil which halted work in Iran 10 years ago because of U.S. sanctions, said it was hard to envision measures that would keep Iranian oil from reaching markets. Keeping Iran’s vast supplies off the market would cause supply problems, which would be difficult in a U.S. presidential election year when energy prices are an issue, he added.

Washington dealt a blow to Tehran’s financial network when it shut down a major channel for oil sales, the Dubai-based Noor Islamic Bank, at the end of last year. But traders say there are still small European and Russian banks with no U.S. exposure that are willing to handle payments. For its part, Tehran has switched into other currencies such as yen and rupees, and carried out barter deals to swap oil or gold directly for food imports, as U.S. pressure makes dollar and euro transfers harder. Such unconventional deals are already in evidence in Iran’s grains trade with the likes of Russia and India. Fearing sanctions will cause food shortages; Iran is ordering huge amounts of wheat to feed its population of 77 million. Tehran may also offer to pay in steel or crude oil.

While the West’s sanctions net is closing in on countries within its own sphere of influence, it is causing few problems for top buyer China, which can self-finance, ship and insure oil supplies from Iran which are being sold on extended credit. An executive from a major oil company told Reuters: “We are hearing the Iranians have started offering a discount as big as $20 per barrel. Do you really believe China will be able to resist?” China has meanwhile helped Iran dodge tightening sanctions by selling it much-needed gasoline. Although a major oil producer, Iran’s aging refineries struggle to produce enough fuel and imports are vital to fill the shortfall.

Iran is also bending over backwards to sell more oil into India, its second biggest client, on flexible commercial terms. “Iran is saying: ‘We will deliver our crude for you on our ships on extended credit. There is no risk’,” said a market source with knowledge of Iran’s sales tactics. India has said it will abide by UN sanctions on Iran, but has refused to go along with the new financial measures imposed by the United States and the EU.

In its search for new outlets, Tehran is also courting smaller Asian countries that may have been neglected. For example, Iran is offering to supply Pakistan with 80,000 bpd on a three-month deferred payment plan. The offer came just after Pakistani officials revealed Iran had asked to import a million tonnes of wheat in a barter deal. Iran has also held talks with South Africa about the possibility of salting barrels away in storage tanks at Saldanha Bay, say industry sources with knowledge of the talks.

Blending Iranian crude and re-labelling the barrels is another option and one which could present an opportunity for trading houses, say industry sources. Possibilities for such operations exist all over the world, from the transhipment hub of Fujairah in the United Arab Emirates, to the Indonesian archipelago, South Africa and even in parts of South America. “Oil traders can buy Iranian crude, rebrand it and sell to someone else,” said an Iranian oil industry source. “They like these sanctions.”

Source: Reuters