Iran is attempting to bluster its way through a crisis in its oil export market, as a Financial Times report reveals today that the country is currently producing 500,000 barrels of oil per day more than it can sell.
According to the FT, Iran is trying to sell an additional 500,000 barrels of oil per day at prevailing market rates to Chinese and Indian refiners, as EU, US and initernational sanctions against the world’s fifth largest oil exporter begin to narrow its list of potential customers.
“Iran is facing severe problems finding a new buyer,” an industry source cited by the FT said, reporting that Total, Repsol Shell and Eni have all stopped purchases of Iranian crude or ceased buying at spot rates.
Yet this is not something for EU policymakers to crow about. Brent has recently reached its highest price ever as denominated in Euros, something which will weigh heavily on the block’s faltering economies and leaves Europe ill-prepared for any further supply shock or increase in belligerence from Tehran.
Why Iran is holding out for sales at prevailing market rates instead of trading its oil at a discount is unclear. Some analysts have read the move as a sign that Tehran is close to developing nuclear weapons capacity, and so can afford to resist a price cut. This theory, together with strong Asian demand for Saudi crude and supply disruptions from Syria, Yemen and Sudan, is putting upward pressure on oil prices.
Turkey remains a loyal customer of Iran’s crude, importing around 200,000 barrels per day.
Tehran has responded to the passage of EU sanctions last month with an announcement on 4 February that it would cut its oil exports to “some” European countries. The announcement lags the decisions already taken by European refiners to cut their orders from Iran by around a third. Reuters reports that Motor Oil Hellas of Greece – which before the sanctions were passed obtained just under half its oil from Iran – was thought to have cut out Iranian crude altogether and Hellenic Petroleum has drastically curbed orders.
Sanctions are aimed at curtaining Iran’s nuclear program, which the West believes is nearing the capacity to build a nuclear weapon.
Tehran as also announced at the weekend that it was halting crude deliveries to British and French companies. “Exporting crude to British and French companies has been stopped … we will sell our oil to new customers,” spokesman Alireza Nikzad said in a statement on Iran’s Ministry of Petroleum website.
The announcement is meaningless in terms of actual crude movements, as both France and Britain had almost completely stopped importing oil from Iran, and before sanctions were raised garnered less than 1% and 4% of total national imports from the Islamic Republic.
These latest developments have nonetheless pushed the future dated Brent benchmark up to above $121 a barrel, which is set to increase if Iran’s bellicose rhetoric and obduracy on price leads the country to begin stockpiling oil in tankers offshore, something it only has the capacity to do so for a month. Tehran must start selling all its oil earmarked for export by mid March to avoid stockpiling or production shut-ins.
While the EU sanctions may therefore ‘work,’ it appears the block has not pulled off the desired trick of causing Iran economic pain without seeing supply disruptions spook oil markets.
