Gasoline Imports Easier to Insure than Crude Exports in Post-Sanctions Iran

By Dmitry Zhdannikov | January 28, 2016

Major oil firms and trade houses are gradually resuming energy trading with Iran but efforts remain very cautious and often face huge legal obstacles, meaning a post-sanctions return to full-scale activity will take weeks if not months.

Trading sources told Reuters major trading houses Gunvor and Vitol have each delivered several cargoes of gasoline into Iran in recent days. Gunvor and Vitol declined to comment.

Meanwhile, Swiss trading house Litasco of Russian oil major Lukoil had to cancel a booking of a tanker to transport oil from Iran to Italy in early February due to what trading sources described as ship insurance difficulties.

Trading sources on Wednesday cited preliminary fixtures being made by Glencore and Total for tankers to lift Iranian crude in February although it was still unclear if the deals had been concluded partly due to insurance issues.

“It is still very difficult despite the sanctions removal. Dollar clearing is an issue, banks’ letters of credit is an issue, ship insurance is an issue. Loads of people are still very cautious,” said a senior trading executive.

A source from Iran’s state oil firm NIOC said Litasco, Cepsa and Total were all seeking to buy crude cargoes but some deals had yet to be finalized and ships had to be found. In Asia – Japan, Taiwan and India have all asked for more crude than their usual purchases prior to the lifting of sanctions, he added.

Leading shipping players say efforts by Iran to start exporting oil to Europe are being held up as tanker owners are still struggling to secure insurance for cargoes.

A nuclear deal between world powers and Iran earlier this month led to the removal of European sanctions on the country.

But many foreign firms remain wary of violating other sanctions that were imposed by the United States and have not been lifted. Measures still in place from Washington prohibit most business between U.S. persons, U.S. companies and Iran as well as no dollar trades.

Third-party liability insurance and pollution cover for vessels is provided by P&I clubs – marine insurers owned by shipping clients and reinsured internationally. The umbrella International Group of P&I clubs is still unable to confirm payments under re-insurance contracts.

“Gasoline exports to Iran are a bit easier as tankers are much smaller, insurance is easier and there are banks which are willing to do this as non-dollar transactions,” one senior trading source familiar with the matter said.

Iran is a gasoline importer despite being the third largest producer within the OPEC group as its outdated refining industry cannot meet rising petrol needs in the country.

The country has continued to import gasoline regardless of sanctions but the biggest names stayed out of the game for the past few years.

Iran’s oil exports have fallen to just over 1 million bpd, from a peak of more than 2.5 million bpd before the imposition of tougher European sanctions in 2012.

Since the sanctions’ removal this month, Iran has ordered a 500,000 barrel per day (bpd) increase in oil output, of which it said some 200,000 bpd will initially go to Europe. Prior to sanctions, Europe was importing as much as 800,000 bpd.

Greece’s Hellenic Petroleum on Friday became the first European refiner to agree to restart crude imports from Tehran and pre-sanctions buyers Italy, France and Spain are expected to follow.

Oil and gas condensate held by Iran on its domestic tankers in floating storage is estimated by shipping sources to be at least 40 million barrels and the country has said it is keen to offload volumes into the market to boost revenues.

“It will take weeks if not months to return to full-scale crude exports to Europe. Tonnes of papers will need to change hands between in-house risk officers, lawyers and banks before the picture is fully clear,” said a trading executive involved in the discussions.

But ultimately oil should flow at full steam.

“It’s just a matter of price. If the price is good, we’ll buy it,” Marco Schiavetti, director of supply and trading with Italy’s Saras said of Iranian oil. “Obviously we will talk to them soon, and we will consider.”

(Additional reporting by Ron Bousso, Nidhi Verma, Jonathan Saul and Libby George; editing by David Evans)


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