SINGAPORE: Most of Iran’s biggest crude buyers in Asia are finding ways around difficulties in financing oil trade and see little disruption in 2011 flows after cuts this year, even as a dispute over payment methods threatens to stall sales to India.
Iran is OPEC’s second-largest exporter, and around three-quarters of its 2 million barrels per day (bpd) of exports flow to Asia.
International sanctions on Iran over its nuclear program have tightened this year, but United Nations measures do not forbid the purchase of Iranian crude. Only the United States prohibits oil firms from buying Iran’s oil.
Still, sanctions on the financial sector have made all transactions including in oil more difficult, and the United States has put pressure on countries trading with the Islamic Republic to abandon dealings. New rules on payment in India have threatened its 400,000 bpd of Iranian imports.
But China, Japan and South Korea, who together buy nearly 1 million bpd of Iranian oil, expect shipments to continue as normal next year, industry sources say. Some of them have already negotiated term supply contracts for 2011.
"Iran is a very large crude exporter. It’s almost impossible for China, India, Japan and South Korea to avoid buying Iranian crude," Zhang Liutong, a Singapore-based analyst at FACTS Global Energy said.
Indian companies will likely find other modes of payment as it is difficult for them to find new supply in the short term, he said. China may benefit if India halts Iranian crude imports as the producer may be under pressure to sell oil at lower prices, he added.
"Personally I can’t see any reason why China should stop oil trading with Iran, at least for now, especially as crude trading is not included in the sanctions," an official at a Chinese oil company said, declining to be identified.
"If there is any new act passed by the United Nations, we will obey it. But considering the long-term cooperation with Iran in the past, it won’t be that easy to stop it completely."
Iran is China’s third-largest crude supplier in 2010, though volume has fallen just under 10 percent for the year.
Volumes seen stable
National Iranian Oil Company agreed in September to open accounts at two South Korean state-owned banks to receive payments for its crude and to avert disruption in bilateral trade due to sanctions.
"We don’t see any impact on crude imports from Iran," a source at South Korea’s largest refiner SK Energy said. "While we cannot disclose the term import barrels for 2011, I can tell next year’s oil import from Iran will continue as much as this year’s."
An official at Hyundai Oilbank also said the term volume for 2011 will be stable from 2010. SK Energy and Hyundai Oilbank are the only buyers of Iranian crude in the country among four refiners. Trade with Iran
accounts for less than 1.5 percent of South Korea’s overall trade but Iran is an important supplier of crude oil to South Korea, which imports all of its crude needs.
Iran is South Korea’s fourth-largest crude supplier. South Korea imported 67.1 million barrels of Iranian crude between January and November this year, accounting for 8 percent of the country’s total crude imports, down about 10 percent from a year earlier.
Japan, Asia’s second-largest oil consumer, buys around 320,000 barrels of oil a day from Iran via term contracts, and an industry source said there were no signs that flow would be impacted again next year.
The 2010 term import volume was down a sharp 24 percent versus 2009, and was the lowest level in around 17 years, hit by lower consumption, high prices, and political pressure.
Showa Shell is the biggest buyer with 82,000 barrels a day, followed by JX at 53,000 barrels a day and Toyota Tsusho at 50,000. In total, 10 refiners buy oil from Iran through term contracts, and negotiations for 2011 have not settled yet.
The producer was struggling with bloated inventories around mid this year, as demand was hit by spring refinery maintenance, fear of sanctions and cuts in term requirements.
Indian row
The spotlight on Iran’s oil exports came after the Reserve Bank of India said deals with Iran must be settled outside the Asian Clearing Union (ACU) system, used by central banks of member nations to settle bilateral trades, in a move praised by the White House.
However, India will try to resolve the payments dispute with Iran when their central banks meet on Friday to keep oil shipments worth about $12 billion a year flowing from the Islamic Republic, without backtracking on the move.
Two Indian industry sources said on Wednesday that NIOC had turned down Indian oil firms’ request for payments outside the ACU.
Additional reporting by Chikako Mogi and Osamu Tsukimori, Judy Hua, and Cho Mee-young
