Buyers of Iranian Oil to Get Waivers: Sanctions Wrap

(Bloomberg) -- With fewer than three days to go until U.S. sanctions hit Iran’s oil exports, Donald Trump’s administration is offering waivers to eight buyers of the Persian Gulf state’s barrels – effectively allowing them to continue some form of purchases.

The critical question now is scale. How much crude and condensates will keep flowing from the Middle East country? The eight nations include Japan, India, Turkey and South Korea, according to a U.S. official. Secretary of State  Michael Pompeo announces said details about the waivers will be provided on Monday.

Combined exports of crude and condensates, a light form of oil extracted from gas fields, have already dropped by around 40 percent since April, the last month before the resumption of  curbs was announced. Meanwhile Saudi Arabia, Iran’s rival across the Persian Gulf, is ramping up shipments to its customers. 

The threat of sanctions already had an impact on Iran’s oil business. The Islamic Republic lost key buyers and is having to rely more on its own fleet of tankers to carry oil to its customers, according to ship-tracking data compiled by Bloomberg. 

A summary of the main Iranian oil importers’ reactions and positions is set out below. This story was first published in mid August, and again on  Oct. 18. Observed flows and exports are for combined crude and condensate from tanker tracking data compiled by Bloomberg, and are recorded on the date at which the vessel left the loading terminal. To calculate what that equates to as a share of each country’s overall purchases, import data from the Riyadh-based Joint Organisations Data Initiative were used. 

China

• Observed flow (Oct.): 742,000 b/d
• Observed flow (Jan.-June): 675,000 b/d
• Share of observed Iranian exports (Oct.): 44%
• Share of observed Iranian exports (Jan.-June): 26%
• Share of Chinese imports (Jan.-June): 7%
• What government has said: Late last month, China’s government told at least two of its state oil companies to avoid purchasing Iranian oil, according to people with knowledge of the matter. The freeze on imports by China National Petroleum Corp. and Sinopec is temporary and purchases may resume depending on the outcome of negotiations with the U.S. The sanctions presented China with an opportunity to take the lead in a project to develop Iran’s biggest gas deposit after France’s Total SA had to halt its operations there. CNPC is now expected to take the lead on the $5 billion project to develop the South Pars field.   
• What companies have said and done: Sinopec reportedly halved loadings of Iranian crude in September, after senior U.S. officials visited the company in Beijing and demanded “steep cutbacks.”

India

• Observed flow (Oct.): 355,000 b/d
• Observed flow (Jan.-June): 592,000 b/d
• Share of observed Iranian exports (Oct.): 21%
• Share of observed Iranian exports (Jan.-June): 23%
• Share of Indian imports (Jan.-Apr.): 13%
• What government has said: The country will get some form of waiver, according to the U.S. official. It was in talks in September with the European Union for an alternative system to make payments to Iran. 
• What companies have said and done: India’s oil importers were planning to buy as much as 9 million barrels, or about 300,000 barrels a day, of Iranian crude in November, having earlier suggested that they wouldn’t purchase any. Saudi Aramco is to supply around 4 million barrels of additional crude to Indian customers for this month.

South Korea

• Observed flow (Oct.): 0 b/d
• Observed flow (Jan.-June): 285,000 b/d
• Share of observed Iranian exports (Oct.): 0%
• Share of observed Iranian exports (Jan.-June): 11%
• Share of South Korean imports (Jan.-June): 9% 
• What government has said: South Korean Foreign Minister Kang Kyung-wha had asked Pompeo for “maximum flexibility” in granting a waiver from sanctions to minimize damage to South Korean companies. 
• What companies have said and done: Refiners haven’t bought any crude or condensate from Iran since June, with the last cargo arriving in the country in July. They turned to other suppliers of condensate to make up for lost flows from Iran, sometimes involving transport over much greater distances. SK Innovation Co., the Asian country’s top processor, bought a cargo of Russian Sabetta condensate for November arrival in Incheon. Refiners are also substituting condensate from Iran with a processed fuel known as naphtha from elsewhere. 

Japan

• Observed flow (Oct.): 0 b/d
• Observed flow (Jan.-June): 125,000 b/d
• Share of observed Iranian exports (Oct.): 0%
• Share of observed Iranian exports (Jan.-June): 5%
• Share of Japanese imports (Jan.-June): 4%
• What government has said: Like India and South Korea, it appears Japan will get a waiver of some sort from the measures. Japan’s Finance Minister Taro Aso in June asked the U.S. to give more clarity and reassurance to Japanese firms. Talks have continued and Japanese government officials agreed with their U.S. counterparts to continue discussions after a 3rd round of meetings was held on Sept. 10 in Washington.
• What companies have said and done: Japan’s crude imports from Iran fell 32 percent year on year to  around 706,000 kiloliters, or approximately 143,000 barrels a day, in August according to data from the Ministry of Finance. Tanker tracking also shows a plunge. No ships were seen departing Iran for Japan in October.

United Arab Emirates

• Observed flow (Sept.): 129,000 b/d
• Observed flow (Jan.-June): 127,000 b/d
• Share of observed Iranian exports (Oct.): 8%
• Share of observed Iranian exports (Jan.-June): 5%
• What government has said: The U.A.E. is committed to abiding by the sanctions and will look for condensate supplies from countries other than Iran, Energy Minister Suhail Al Mazrouei said in early October. Dubai, the U.A.E.’s trade hub, does business with Iranian merchants and purchases condensate for its refineries. There were signs of flows from other countries rising in July at Iran’s expense. The Port of Fujairah was asked by U.A.E. customs department to require Certificate of Origin documentation with an official stamp from all tankers bringing oil to the terminal and its storage tanks. 
• What companies have said and done: Dubai-based Emirates National Oil Co. is trying alternatives to cargoes from the Islamic Republic, according to traders with knowledge of the matter. However, the Suezmax Falcon Pride continued to shuttle between Iran’s Assaluyeh condensate terminal and Dubai’s Jebel Ali port in October.

European Union

• Observed flow (Oct.): 97,000 b/d
• Observed flow (Jan.-June): 483,000 b/d
• Share of observed Iranian exports (Oct.): 6%
• Share of observed Iranian exports (Jan.-June): 19%
• Share of EU imports (Jan.-June): 4%
• What public authorities have said: EU foreign-policy chief Federica Mogherini said back in July that the bloc was determined to preserve the Iran nuclear deal and considers that the consequences of abandoning it could be “catastrophic.” A month earlier, she stressed the most important challenge was to find solutions on banking and finance to support “legitimate trade and investment.” In July, the U.S. rejected French, British and German requests to grant waivers or exemptions to companies seeking to do business in Iran. Mogherini announced in September that the EU, China and Russia backed a mechanism to allow “legitimate” business to continue with Iran. “In practical terms this will mean that EU member states will set up a legal entity to facilitate legitimate financial transactions with Iran, and this will allow European companies to continue trade with Iran,” she said after meeting with representatives of the other signatories: the U.K., France, Germany, Russia, China plus Iran. This will be “in accordance with European Union law, and could be opened to other partners in the world,” she added. The mechanism will be provided with a banking license “as soon as possible,” German newspaper Handelsblatt reported. However, legal sanctions experts and oil traders said the creation of a special purpose vehicle and payments channel would still leave traders buying or selling Iranian crude vulnerable to punitive actions by the U.S. Treasury Department.
• What companies have said and done: The lack of clarity on the scale of the reductions sought by the Trump administration left some customers continuing to buy Iranian crude while others cut back. France’s Total SA failed to secure a waiver from the U.S. to exempt Phase 11 of the South Pars gas field in Iran from sanctions, and notified Iran it will withdraw from the project. “Within the U.S. legal framework, we can’t work in Iran,” Total CEO Patrick Pouyanne said in July.

Italy

• Observed flow (Oct.): 65,000 b/d
• Observed flow (Jan.-June): 168,000 b/d
• Share of observed Iranian exports (Oct.): 4%
• Share of observed Iranian exports (Jan.-June): 7%
• Share of Italian imports (Jan.-June): 14%
• What companies have said: Iran has been an important supplier to Saras SpA, but the refiner isn’t concerned about sourcing crude due to flexibility of operations, according to CEO Dario Scaffardi. The company is awaiting guidance from Italian and European authorities. Suezmax tanker Kriti Spirit discharged a cargo of Iranian crude at Saras’s Sarroch refinery in late October.
• Eni SpA said in May that the company has no material exposure to Iran and will not be affected by the sanctions. Tankers hauling Iranian crude continued to discharge at ports near to the company’s Italian refineries in October, with the Suezmax Delta Med calling at Milazzo and Genoa and the Marathi discharging  at Taranto and Genoa.

Spain

• Observed flow (Oct.): 0 b/d
• Observed flow (Jan.-June): 119,000 b/d
• Share of observed Iranian exports (Oct.): 0%
• Share of observed Iranian exports (Jan.-June): 5%
• Share of Spanish imports (Jan.-June): 9%
• Compania Espanola de Petroleos SAU, or Cepsa, said in an IPO prospectus that it took the "final shipment" of Iranian crude in September. The Suezmax tanker Monte Udala loaded a cargo of around 1 million barrels of Iranian crude on Sept. 29, which it delivered to Cepsa’s Huelva refinery about three weeks later, according to tanker tracking data compiled by Bloomberg.
• Repsol SA took the first spot cargo of crude from Iran’s West Karoun oil region in June, 500,000 barrels of Pars crude. The last observed delivery of Iranian crude to a Repsol refinery was from the Suezmax tanker Ottoman Nobility, which discharged at Cartagena in late August, according to tanker tracking data compiled by Bloomberg.

France

• Observed flow (Oct.): 0 b/d
• Observed flow (Jan.-June): 94,000 b/d
• Share of observed Iranian exports (Oct.): 0%
• Share of observed Iranian exports (Jan.-June): 4%
• Share of French imports (Jan.-June): 9%
• Total SA  stopped buying Iranian crude in July, Pouyanne said at the Oil & Money conference in London. That was the same month a tanker was last observed delivering Iranian crude to France.

Greece

• Observed flow (Oct.): 32,000 b/d
• Observed flow (Jan.-June): 66,000 b/d
• Share of observed Iranian exports (Oct.): 2%
• Share of observed Iranian exports (Jan.-June): 3%
• Share of Greek imports (Jan.-June): 14%
• Hellenic Petroleum SA said in May it was assessing its position and commercial arrangements following the U.S. decision. The refiner said it will “comply with the applicable international regulatory framework,” and that it didn’t expect any significant effect on its operations. The last tanker carrying Iranian crude discharged at the company’s Pachi, Megara terminal in June.
• Motor Oil (Hellas) Corinth Refineries SA has continued to receive Iranian crude at its Agioi Theodoroi terminal near Corinth at a rate of around one Suezmax tanker per month, or approximately 33,000 barrels a day. The most recent tanker, the Kriti Diamond, discharged at the end of October, according to tanker tracking data compiled by Bloomberg.

Turkey

• Observed flow (Oct.): 129,000 b/d
• Observed flow (Jan.-June): 182,000 b/d
• Share of observed Iranian exports (Oct.): 8%
• Share of observed Iranian exports (Jan.-June): 7%
• Share of Turkish imports (Jan.-June): 48%
• What government has said and done:  The country’s biggest refiner, Tupras Turkiye Petrol Rafinerileri AS, is expected to get a waiver from the U.S., allowing it to continue to buy crude oil from Iran, according to two people familiar with the matter. In pure volume terms, Turkey is more reliant on Iranian oil than any other country, according to data compiled by Bloomberg.

To contact the editor responsible for this story: Alaric Nightingale at anightingal1@bloomberg.net, John Deane

©2018 Bloomberg L.P.