Iran Oil Waivers: How Buyers Are Lining Up After U.S. Exemptions
India, China and South Korea, three of Asia’s top buyers, got waivers allowing them to purchase a combined 860,000 barrels a day.
(Bloomberg) -- Armed with waivers to keep importing Iranian oil without running afoul of U.S. sanctions, some of the Islamic Republic’s top customers are preparing to buy.
The exemptions mean at least some supplies from OPEC’s third-biggest producer will keep flowing into international markets, after its exports plunged almost 40 percent since April -- the month before Washington announced the curbs. In a bid to keep customers, the state-run National Iranian Oil Co. has been offering record discounts on its crude.
Almost all major buyers of Iran’s oil had negotiated with the U.S. for the waivers, arguing that cutting purchases to zero would affect their energy industries and boost fuel costs. While the U.S. granted exemptions to eight buyers of Iranian oil, that number will effectively shrink to five by year-end and an oversupplied market in 2019 will help cut Iranian oil sales further, according to Brian Hook, State Department’s special representative for Iran.
India, China and South Korea, three of Asia’s top four buyers, got waivers allowing them to purchase a combined 860,000 barrels a day. The levels for Japan, Italy and Greece are yet to be confirmed. Turkey got waivers for about 60,000 a day, far less than it bought in 2017.
A summary of plans by some of Iran’s biggest oil customers and what they may buy under the waivers is set out below. This story will be updated as new information becomes available. The exemptions have been granted for 180 days, and will be reviewed toward the end of the period.
South Korea
- Waiver: Up to 200,000 barrels a day of condensate
- Purchases before sanctions: 300,000 barrels a day (condensate) in 2017
While the Asian country was the third-biggest importer of Iranian oil, it was the first major buyer to cut purchases to zero as the U.S. prepared to impose sanctions. It’s now allowed to buy as much as 200,000 barrels a day, though actual imports may not be that high.
Purchases must be limited to cargoes of condensate, a type of ultra-light oil that’s critical for South Korea because many of the nation’s plants are geared to process it. The country bought about 300,000 barrels a day of South Pars condensate from Iran in 2017.
The country may hold off purchases of Iranian condensate until March as it needs to sort out issues surrounding chartering and insurance, say people with knowledge of the matter who asked not to be identified because the information is private. South Korean companies’ oil-price negotiations with their Iranian counterparts haven’t taken place yet.
South Korea will maintain a won-based payment system with Iran, making deposits into local escrow accounts in Industrial Bank of Korea and Woori Bank. The money won’t directly go to Iran, which can only use it to buy food, medicine or other non-sanctioned goods from its customers.
Japan
- Waiver: TBC
- Purchases before sanctions: About 160,000 b/d in Jan.-Sept. 2018
The nation’s refiners are likely to restart imports of Iranian oil now that it’s one of the eight recipients of exemptions, Minister of Economy, Trade and Industry Hiroshige Seko told reporters this month.
As Japanese oil companies are still trying to sort out issues surrounding shipping, insurance and banking they are unlikely to lift cargoes loading in January, according to a person familiar with the matter.
Fuji Oil is still considering whether to make use of the U.S. waiver and resume imports of Iranian oil, according to its spokesman Takaaki Sobue on Nov. 19, adding that Iranian Heavy is among grades it will likely purchase.
Meanwhile, JXTG Holdings Inc., the country’s biggest refiner, said Nov. 7 that it’s still considering whether to resume purchases from the Persian Gulf state, according to Senior Vice President Yasushi Onoda.
Japanese processors halted purchases of Iranian crude in October under U.S. pressure. The Asian nation cut shipments in order to get the waiver, Finance Minister Taro Aso said Nov. 6.
India
- Waiver: Up to 300,000 b/d
- Purchases before sanctions: 560,000 b/d in Jan.-Oct. 2018
The South Asian nation was one of the most vocal negotiators for an exemption from the U.S., as the government faced protests over rising fuel costs before national elections next year.
Under the exemptions, it will be allowed to import as much as 300,000 barrels a day. That’s under Iran’s average daily exports to the nation of about 560,000 barrels this year, and almost 450,000 barrels in 2017, shipping data compiled by Bloomberg show.
Indian state-run refiners are set to buy 1.25 million tons of Iranian oil in November and also the same volume of crude from the Persian Gulf state in December, according to Indian Oil Corp. Ltd Chairman Sanjiv Singh. The companies will make payments in rupees for the Iranian crude supply.
China
- Waiver: 360,000 b/d
- Purchases before sanctions: 658,000 b/d in Jan.-Sept. 2018
Asia’s largest buyer of Iranian oil is said to have resumed purchases from the Persian Gulf state following a one-month hiatus. China will begin loading Iranian crude again this month after it halted buying in October, according to people with knowledge of the matter. Payments to Iran will only be settled at a later date, they said.
The nation is allowed to import 360,000 barrels a day under the exemptions, according to people with knowledge of the matter. That doesn’t include oil produced by projects in the Islamic Republic in which Chinese companies have equity.
While China had bought about 658,000 barrels a day over the first nine months of this year, the government was said to have told at least two state oil companies to avoid purchasing the producer’s oil before the sanctions went into effect. That decision preceded a meeting between President Xi Jinping and U.S. counterpart Donald Trump and coincided with flaring trade tensions between the countries. Chinese ship owners had also stopped hauling Iranian oil.
Taiwan
- Waiver: TBC
- Purchases before sanctions: About 16,000 b/d in Jan.-Aug. 2018
The chairman of Formosa Petrochemical Corp., Taiwan’s only publicly traded oil refiner, didn’t seem in too much of a rush to buy Iranian oil even though the island got a waiver.
“We don’t dare to sign any more contracts to buy Iranian crude oil after President Trump’s threat,” Chen Bao-lang said on Nov. 6. “But it’s not an issue for us, whether Taiwan got an exemption or not. It’s very easy to find alternatives.”
Taiwan has been weaning itself off the Islamic Republic’s crude for the past 10 years. In 2003, Iran’s share of imports peaked at around 18 percent. So far this year, the Persian Gulf state made up just under 2 percent.
Turkey
- Waiver: 3 million tons a year, or about 60,000 barrels a day
- Purchases before sanctions: 11.5 million tons, or about 230,000 barrels a day
Turkey is more reliant on Iranian crude than any other country: almost half its imports came from the Persian Gulf country in the first half of this year, according to data compiled by Bloomberg. Turkish Energy Minister Fatih Donmez said Nov. 9 that the sanctions on Iran indirectly impact Turkish people. Tupras Turkiye Petrol Rafinerileri AS, by far the nation’s largest refiner, is already looking for alternatives, he said.
--With assistance from Alaric Nightingale, Sarah Chen, Alfred Cang, Stephen Stapczynski, Samson Ellis, Yu-Huay Sun, Nick Wadhams and Debjit Chakraborty.
To contact the reporters on this story: Heesu Lee in Seoul at hlee425@bloomberg.net;Sharon Cho in Singapore at ccho28@bloomberg.net;Tsuyoshi Inajima in Tokyo at tinajima@bloomberg.net
To contact the editors responsible for this story: Pratish Narayanan at pnarayanan9@bloomberg.net, Ovais Subhani
©2018 Bloomberg L.P.