BENOIT FAUCON and SUMMER SAID
Japan and Spain said this week they had reduced Iranian oil
imports and switched to Saudi crude, providing the first
evidence that some of Iran's largest customer nations are
reducing their reliance ahead of stifling sanctions this
The disclosures come as Iran's customers are rushing to sign
new supply deals with rival producers, triggering expectations
that the Islamic Republic's overall shipments - now broadly
stable - could fall by the summer.
The United Kingdom and France had previously stopped buying
oil from Iran, though neither had made Iranian crude purchases
on the same scale as Japan and Spain in recent months.
"Saudi exports surged recently [to 9 million barrels of oil
a day] because some customers are preparing for what might
happen [this summer] with regards to Iran," a senior Saudi oil
official said this week.
An arm of the US Department of Energy warned Wednesday that
the oil market is tightening partly because of the problems
faced by Iran, the world's third-largest oil exporter.
That risks pushing up the price motorists pay at the pump,
the US Energy Information Administration said.
Iran's oil sales to Japan, its third-largest customer, fell
12% in January compared with a year earlier, data from Tokyo's
Ministry of Finance revealed Tuesday.
Tehran's oil was partly displaced by Saudi Arabia, whose
exports to Japan shot up 19.6% in the same period.
Spanish imports of Iranian crude - one of Iran's top three
clients in the European Union - fell by 37% in
December on a monthly basis, and Saudi Arabia filled much of
that shortfall, according to data released Monday by Madrid's
strategic hydrocarbons reserve board CORES.
The December figures are the most recently available from
Japan and Spain didn't say they had cut their Iranian oil
purchases because of sanctions, but the moves have occurred as
the West ratchets up pressure on Iran's controversial nuclear
The US is set to ban all oil trades with Iran's central
bank, beginning in June. The European Union is then set to
embargo all Iranian oil from July 1.
Washington is using the measure as a stick to force Japan
and South Korea to consider cuts on Iranian oil supplies or
risk being shut out of business on Wall Street.
Yet even before Iran is hammered by these unprecedented
measures, narrower sanctions on Iranian banks, oil shipments
and insurance that came into force in January are hitting
Iran's oil trades.
India and China have struggled to
find methods to bypass the new banking sanctions while some
shippers in Asia refuse to load Iran's crude because they use
"There is emerging evidence that some shipments of Iranian
crude oil under existing contracts are being curtailed due to
the unwillingness of US and EU insurance providers to cover
them," the EIA said Wednesday.
While Iran faces challenges to its oil sales, its customers
are offering to buy more crude from rivals in the coming
India, Iran's second-largest oil buyer, has contacted Saudi
Arabia and Iraq in recent days as it seeks fresh supplies for
expanding refiners in its new financial year starting in April,
according to Indian oil minister Jaipal
Even so, Reddy said India expects its crude imports from
the Islamic Republic to be at normal levels, not higher, in the
For now, Iran says its crude-oil exports are stable at 2.2
An oil-tracking expert, who confirmed the shipments were
broadly stable, said cuts in oil purchases by some countries
were made up by higher Iranian short-term storage at sea, which
it counts as exports, and increased buying by others on a
Shipping brokerage ICAP said Friday that Iran is temporarily
storing oil outside its territorial waters on four very large
crude carriers, each capable of carrying 2 million bbl of
Iran had no short-term floating storage two weeks ago,
according to ICAP.
But such mitigating factors may be short-lived. There is a
risk temporary storage may become permanent as Iran faces
challenges to selling its crude.
The lack of new demand from non-EU buyers casts doubt on
Iran's claim that it can find replacements for sales lost due
to Brussels' ban.
Trevor Houser, a partner at New York-based economic research
firm Rhodium Group, said in a note Wednesday that he expects
650,000 to 775,000 bpd of Iranian crude "will be looking for a
new home" by the summer.
Ehsan Ul-Haq, a senior staff consultant at UK-based KBC
Advanced Technologies, forecasts an even larger drop in
Tehran's oil exports. He said they will fall by about half to
1.1 million or 1.2 million bpd by early May.
Iran's oil minister Rostam Ghasemi appeared to acknowledge
the problem when he said last month that the country planned to
curb crude-oil exports.
But if Iran's exports decline, as many experts expect, then
other oil producers such as Saudi Arabia will need to draw on
their own spare production capacity, reducing the cushion of
available oil production to uncomfortable levels and boosting
global oil prices.
The EIA said Wednesday that global spare oil production
capacity was at 2.5 million bpd, its lowest level since late
That level is "modest" when "considered in the context of
current geopolitical uncertainties, including, but not limited
to, the situation in Iran," the administration said.
The EIA defines spare capacity as the amount of additional
oil production that can be brought on-stream within 30 days and
sustained for at least 90 days.
"Low spare oil production capacity tends to be associated
with high oil prices and high oil price volatility," it
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