Ties between Gulf oil producers and Asian customers are tightening still, as Japan is reportedly seeking to shore up supplies of Saudi crude on long-term commitments more commonly seen on gas markets.
Reuters reports that Japan’s Trade Minister Yukio Edano today said he would ask for Saudi Arabia’s continued support to secure stable oil supplies when he meets with Saudi Oil Minister Ali al-Naimi later in the day.
In February Saudi Aramco signed a 20-year oil supply deal with South Korea’s S-Oil, which sees S-Oil’s entire crude requirement of 669,000 barrels per day satisfied.
Japan, which before the latest round of sanctions imported 313,000 barrels a day from Iran, is facing an energy squeeze on several fronts. In addition to a reduction in its imports of Iranian oil, the country is importing record quantities of LNG to compensate for the shutdown of its nuclear sector.
According to Japanese customs data, March imports of Iranian oil have reduced year-on-year from 2,096,400 kilolitres (425,353 barrels per day) in 2011 to 1,334,012 kilolitres (270,667 barrels per day).
For its efforts Japan – together with 10 EU member states – has been granted a waiver from the US, which will allow it to continue to import a reduced amount of Iranian oil without fear of being shut out of the American economy.
Meanwhile South Korea is bracing itself for a further drastic reduction in Iranian oil imports from late June, and has received assurances from the UAE and Saudi that the gulf producers will bridge the resultant supply gap.
“So far the UAE and Saudi Arabia have promised to provide more oil than now if things get worse. They have promised to fill the gap,” South Korea’s Minister for Strategy and Finance Bahk Jae-wan told Reuters on the sidelines of a bilateral economic in Abu Dhabi. No oil volumes had been specified so far, though South Korean refiners have already started to reduce supplies from Iran.
According to data from KNOC, Iranian exports to South Korea have already fallen 22% to 17.7 million barrels in the first three months of this year.
Asia’s increasing reliance on GCC oil is set to accelerate the already increasing commercial ties between the the regions, especially in the upstream sector.
India is under further diplomatic pressure from the US to curb its imports, a tough proposition given increasing demand and Iran’s position as the country’s number two supplier, and has already reduced supplies. 45% of Indian oil payments to Iran are currently made in rupees.
“Since 2008, India has reduced its imports of Iranian oil by volume and as a percentage of India’s total oil imports. Iran now only supplies about 10 per cent of India’s oil imports, down from over 16 per cent in 2008,” said the latest report of the US Congressional Research Service.
The Financial Times is reporting that Tehran is accepting payments for shipments to China partly in Remninbi, using the Russian banking system as a conduit. Based on customs data, Chinese imports of Iranian crude are thought to have halved this year.
All four countries, which together accounted for more than half of Iran’s oil contracts before the sanctions, are scrambling to secure adequate insurance terms for Iranian oil shipments, which have already been affected by EU sanctions that prevent European insurers from covering Iranian oil on board. Japan is considering state guarantees of oil shipments.
Tehran vehemently denies that its oil shipments to Asian countries have reduced.
The US deadline for compliance with its latest round of sanctions is 28 June.
