Iranian oil exports surge ahead of US sanctions

May 11 2018

Iran has seen a massive surge in exports ahead of US president Trump’s announcement to cancel the Iran nuclear deal, which came on 8th May.

The forthcoming US sanctions are expected to include shipowners and operators, shipbuilders and repairers, either based in Iran, or doing business with Iran.

During April, refinery maintenance coupled with a release of floating storage volumes pushed Iran’s crude and condensate exports to multi-year highs, although output remained stable, Platts reported in an analysis of the situation.

Sources told the newswire that the rise in exports last month could be a way for Iran to prepare itself for a more challenging environment amid the likelihood that US sanctions could restrict the country’s crude flows.

Although it is early days, demand for Iranian crude in China and India is likely to remain very strong despite the sanctions, although refiners in Europe, South Korea and Japan are likely to tread more carefully.

It was estimated that export volumes on Aframax, Suezmax and VLCC hulls from Iranian ports in April rose 16% to 2.7 mill barrels per day from 2.32 mill barrels per day in March, according to data from S&P Global Platts trade flow software - cFlow.

The sharp rise in exports is attributed to turnaround work at the Abadan refinery along with floating storage volumes being exported to some of Iran’s key customers.

Out of this total, crude exports were around 2.45 mill barrels per day, a rise of some 400,000 barrels per day from March, although condensate exports remained largely steady month-on-month.

Exports to Asia rose significantly to 1.81 mill barrels per day in April from 1.4 mill barrels per day in March, accounting for 67% of total monthly exports.

The Asian gain was led by a rise in exports to India, up by almost 60% to 670,500 barrels per day. Indian demand for Iranian crude is rising steeply as both Indian state-owned and private refiners are buying more, due to Iran offering freight discounts.

India’s oil ministry has indicated that its imports of Iranian crude for the fiscal year 2018-19 will rise by more than 30% from the previous year.

China remained the largest export destination for Iranian oil, with flows rising to 714,467 barrels per day last month, up just over 20,000 barrels per day in March.

Even Japanese demand, which fell sharply in the past year, rose from zero in March to 118,900 barrels per day in April.

Flows to South Korea and Japan, which mainly consist of condensates, have declined in the past few months, as Iran has been consuming more volumes domestically at its Persian Gulf Star refinery, Platts said.

Exports to Europe last month fell, as interest from Turkey, Italy, Spain was slightly lower. However, European refiners said that Iranian crude remained very competitively priced against sour grades from Iraq, Russia and Saudi Arabia.

But with expectations of US sanctions, some refiners started to buy more Iraqi and Saudi barrels for June, in case Iran’s exports are immediately impacted.

Iran has doubled its oil exports, since the landmark deal with Western powers to lift sanctions on its oil industry was implemented in January, 2016, Platts said.

Other sources said that due to the US sanctions, foreign flag tankers will probably no longer trade with Iran, resulting in an exodus from the MEG. One oil source that could benefit is the US, which is ramping up its ability to export crude in larger tankers, such as VLCCs. 

In a comment, Nigel Carden, Deputy Chairman for the UK Club managers, Thomas Miller P&I,, said; “The decision is expected to have significant implications for maritime trade with Iran and the insurance of such trade.

“However, a full assessment of the likely impact of the decision will only be possible following receipt of clarification of the position of the remaining JCPOA partners, who have recently reaffirmed their support for the JCPOA, together with further clarification from the US Treasury’s Office of Foreign Assets Control (OFAC) in relation to the management of the ‘wind-down’ periods envisaged under the decision.

“An FAQ document, published by OFAC Wednesday, indicates that following a 180- day ‘wind-down’ period running up to 4th November, 2018, sanctions will be restored (including secondary sanctions directed against non-US persons) in relation to specified activities and entities in relation to which relief was granted under the JCPOA,” he said.

It should be noted that this includes in paragraph 1.3 - (i) sanctions against Iran’s ports operators, and shipping and shipbuilding sectors; sanctions against IRISL and South Shipping Line - (ii) sanctions on petroleum-related transactions with, among others, the National Iranian Oil Co (NIOC), Naftiran Intertrade Co (NICO), and National Iranian Tanker Co (NITC), including the purchase of petroleum, petroleum products, or petrochemical products from Iran - (v) sanctions on the provision of underwriting services, insurance, or reinsurance.

Paragraph 4.4 provides that General Licence H, which authorises US owned or controlled foreign entities to engage in certain activities involving Iran, will be revoked as soon as is administratively feasible, and that activities already authorised by Licence H, including provision of insurance and re-insurance, must be wound down by 4th November 2018. 

“The International Group Clubs will continue to monitor developments and further guidance will be provided when there is greater clarity. In the meantime, however, members should take care before entering into any new Iran related fixture to ensure that they only do so with up to date legal advice on sanctions compliance,” he advised.


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