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The problems to buying Iranian crude are mounting in Europe and very
soon would extend to Japan.”


Sanctions put choker on Iran oil exports
By Javier Blas in London
Published: September 13 2010 19:44 | Last updated: September 13 2010
19:44
Iran faces mounting difficulties selling its crude oil with tighter
sanctions depriving the country of essential shipping and banking
services.

Tehran’s problems have worsened after the US and the European Union
imposed their own wide-ranging sanctions in July, going far beyond the
restrictions contained in earlier UN resolutions. Although the
measures, implemented because of Tehran’s nuclear ambitions, did not
focus on the oil exports that drive Iran’s economy, traders said they
were having an effect.

Iran is the world’s fourth-largest oil exporter, with Japan, China,
India and South Korea its largest clients. Italy and Spain are the top
European buyers. The US has not bought crude oil from Tehran since the
Islamic revolution of 1979.

The difficulties have yet to cause a fall in Iran’s oil exports but
traders warn of a reduction in the next few months if the problems are
not solved.

The International Energy Agency, the western countries’ oil watchdog,
said last week that Iran might have to resort to storing oil at sea in
tankers “as new sanctions have the unintended consequence of squeezing
crude buyers”.

Traders and oil company officials said European and Middle Eastern
banks have all but stopped issuing letters of credit – an instrument
used in trade – with Iranian financial institutions. This makes it
very difficult to transact payments for oil sales. Shipping companies
are also refusing to send tankers to Iranian oil terminals, while
insurers are reluctant to cover cargoes, they said.

“Shipping and letters of credit are the two problems,” said an
official at a western oil company which traditionally buys Iranian
crude. “It is getting increasingly difficult.” An official at a
trading house said: “The letters of credit difficulties could soon
start to have a noticeable impact on Iran’s export volumes.”

US officials have fanned out across the world, warning against falling
foul of new American legislation imposing penalties on any banks doing
business with blacklisted Iranian entities.

Traders said they were still using Asia-based banks to open letters of
credit, but sanctions announced recently by Japan and South Korea will
obstruct this avenue. Chinese banks will probably then become the only
source of finance for any dealings with Iran.

The oil ministry in Tehran declined to comment, referring to an
interview last week in which Mohsen Khojasteh-Mehr, the deputy oil
minister, denied any difficulties.

“The demand situation in the global market is in such a way that Iran
even puts conditions to sell its crude,” Mr Khojasteh-Mehr was quoted
as saying by Mehr, an Iranian news agency.

Iran produced 3.7m barrels a day of crude oil in August, the latest
data available, marking one of the lowest monthly output levels since
early 2003. The bulk of the drop is due to Opec’s mandated production
cuts in late 2008 and early 2009.

These were agreed in a collective effort by the cartel to boost oil
prices. But recently, production levels have increased in other Opec
nations, while output in Iran has continued to decline. The country is
also known to have stored oil at sea in tankers recently.

David Kirsch, director of market intelligence at PFC Energy, the
consultants, said banks were unwilling to take the risk of dealing
with Iran.

“Washington would not push forward for a formal crude oil embargo, but
if denying Iran access to the financial market has an impact on oil
sales, that is not seen as a problem,” he said. “The problems to
buying Iranian crude are mounting in Europe and very soon would extend
to Japan.”

Additional reporting by Najmeh Bozorgmehr in Tehran and Daniel Dombey
in Washington