Iran’s shrinking oil sales to Asia benefitting OPEC giants, Russia

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Saudi Arabia, Russia and Venezuela are emerging as the major beneficiaries of the recently imposed EU-led sanctions on Iran’s oil exports, exporting about 21% more crude to Asia’s biggest buyers compared to a year ago.

Reports said China, Japan, South Korea and India have reduced Iranian imports by a third in the first six months of the year as EU and US sanctions made it difficult to pay for the crude and find insurance cover for tankers. The United States is finalising more tougher sanctions to restrict Iran’s oil revenues.

World’s top oil exporter Saudi Arabia, Russia and other OPEC producers Venezuela and Angola ramped up their sales to Asia’s top oil consumers amid a decline in Iranian oil sale.

While the US and European economies teeter on recession and struggle from deepening financial crisis, Asia is the region where oil demand is reaching new heights.

“We have seen that refiners have successfully replaced Iranian crude with other crudes,” Sushant Gupta, an analyst at Wood Mackenzie, told Reuters. “There is no pressure from the supply side.”

Western powers are trying to force Iran to abandon a nuclear programme they insist is designed for building weapons. Tehran says its programme is entirely civilian and peaceful.

Japan, South Korea and India all cut imports from Iran to gain a waiver from the US sanctions which threaten to cut off institutions dealing with Iran from the US financial system.

China was also awarded a waiver after cutting its imports from Iran due to a dispute over contract terms earlier this year. The EU ban on insuring any Iranian oil shipments also hindered China’s imports from Iran.

No Further Decline

Reports said Saudi Arabia boosted sales to the top four Asian buyers by 15% during first half of the year to 3.8 million barrels per day (bpd) on year-on-year basis.

Venezuela’s year-on-year exports also jumped 42% during the same period to 596,000 bpd, followed by a 36% year-on-year increase in shipments from Russia to 682,000 bpd.

Volumes from Angola have risen 24% year-on-year in the first six months to 994,000 bpd and 26% from Kuwait to 938,000 bpd.

China, Asia’s top oil consumer and the world’s second largest, appeared to favour Russian crude in its purchases during the first six months of the year.

Chinese data showed Iranian imports were cut by 20.5% during that period to 429,873 bpd, and that amount, as well as an additional 11%, was replaced by imports from Saudi Arabia, Angola and Russia.

Russian imports recorded the biggest increase of 44% over the same period a year earlier, followed by Angola’s 35% and Saudi Arabia’s 16%.

Japan’s purchases from Iran for the first six months fell 33.4% from a year earlier to 227,573 bpd, with Saudi Arabia, Russia, Oman and Kuwait filling in the gap.

The 17% fall in purchases by South Korea from Iran was filled up by Saudi Arabia, Kuwait and Qatar.

India, Asia’s third-largest oil consumer, is the only country that has posted an increase in Iranian imports. Shipments in the first six months have risen 3.9% as New Delhi stepped up purchases ahead of the EU sanctions, which took effect on 1 July.

Some industry analysts believe Iran’s exports to Asia may not fall further as all four buyers have found ways around the sanctions while keeping import volumes low to keep on qualifying for the US waiver.

Japan has agreed to provide sovereign guarantees to vessels owned by its shipping companies to transport Iranian oil, whereas China and India have asked Iran to ship the crude on its own tankers and take the risk. South Korea has said that it may resume imports from Iran soon.

“The third quarter will probably be the worst for Iran. We expect production to fall further, but production may improve from the fourth quarter as buyers revive purchases,” said Gupta at Wood Mackenzie.

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