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August 2, 2012 (TSR) - With US financial sanctions against Iran having come into force June 28 and European Union sanctions banning oil imports from the Islamic Republic becoming effective July 1, major shifts in the global oil supply landscape look inevitable.
Importing countries have had time to prepare, and most have either secured waivers from the US sanctions by reducing their purchases of crude from Iran or have sourced alternative supplies from a market that most of the oil sector believes is amply supplied.
The International Energy Agency estimated on June 13 that oil importing countries had bought nearly 1 million b/d less crude from Iran in April and May than in late 2011 as a result of the tightening sanctions.
The agency also warned that Iran may need to shut in some production in the months ahead if its export options remain constrained and its available storage space fills up.
Nonetheless, the IEA said Iran had kept output steady in May at 3.3 million b/d compared with April.
The US sanctions, signed by President Barack Obama on December 31, seek to bar from the US financial system foreign banks that continue to have oil-related dealings with Iran’s Central Bank.
But Washington has offered waivers to countries that make “significant” reductions in their purchases of Iranian oil.
In recent months, many of Iran’s customers who might have been affected by the US measures have won exemptions by agreeing to reduce volumes.
These include all of Iran’s major customers in Asia such as Japan, South Korea and India. In a last-minute move on June 28, Washington also gave a waiver to Tehran’s top buyer China, which had said it would only respect UN sanctions and not unilateral measures.
A number of EU countries, including former big buyers of Iranian crude Italy, Spain and Greece, have been exempted from the US financial sanctions.
Several had already stopped buying from Iran before the sanctions were agreed in January, and banking sanctions already in force had also made it difficult for companies to pay Tehran for oil.
But the exemptions are largely meaningless for EU countries, which will be unable to import Iranian oil as of July 1.
Italy can, in theory, continue to import Iranian crude that Eni receives as payment for previous investment in Iran’s upstream, but because of the difficulty in finding insurance to cover tankers, Eni is not expected to continue taking Iranian crude after July 1.
EU countries have been replacing much of their Iranian barrels with crude from other sources — predominantly Saudi Arabia, Kuwait, the UAE, Russia, Kazakhstan and Libya.
Greece, which had been a major importer of Iranian crude, made its final purchases in March, and has not imported any since April.
Instead, it has increased its imports of Russian Urals and other sour barrels such as Iraqi Kirkuk and Libyan Al-Jurf.
Spain’s refiners Repsol and Cepsa have also had little difficulty switching supplies.
Repsol has not bought any oil from Iran since January 2012, while Cepsa stopped buying in April.
Cepsa was Spain’s largest consumer of Iranian oil, previously receiving about 70,000 b/d, equivalent to about 15% of its total imported volume.
The company said in February it would replace the Iranian volumes with shipments from the UAE.
Cepsa is owned by the UAE’s Abu Dhabi based International Petroleum Investment Company, so the supply of crude from the UAE is not a surprise.
Repsol was the second-biggest importer of Iranian crude with an estimated consumption of 60,000 b/d before it stopped buying.
Market sources said the company had increased volumes from Saudi Arabia, among others.