Asia Refiners Weigh Impact of Iran Oil Insurance Deal on Imports

Refiners in South Korea and Japan said they have no immediate plans to boost crude purchases from Iran while Indian processors intend to maintain contracted volumes after the EU lifted a ban on insuring tankers.

It’s still too early to say whether SK Innovation Co. (096770), South Korea’s largest refiner, will increase purchases, Lee Mi Ji, a spokeswoman in Seoul, said by phone. Japan’s Showa Shell Sekiyu K.K. doesn’t plan to change its supply deals for the time being, according to the company. Indian Oil Corp., Hindustan Petroleum Corp. and Mangalore Refinery & Petrochemicals Ltd. said that while the removal of restrictions will enable them to import contracted volumes more easily, they don’t intend to buy more than previously planned.

“Insurance was an issue, but the key point is that there is no lifting of current restrictions on Iranian crude, they just remain the same,” said Neil Beveridge, a Hong Kong-based analyst at Sanford C. Bernstein. “We don’t anticipate any change in crude exports.”

The end of the European Union ban on insuring ships carrying Iranian crude is part of a first-step agreement that will give the country as much as $7 billion in relief from economic sanctions over six months in exchange for curbs on its nuclear program. Oil exports will be held to about 1 million barrels a day, or 60 percent below 2012 levels, under western sanctions that remain in force, according to the White House.

Buyers of Iranian crude that have already reduced purchases won’t be required to make further cuts over the next six months under yesterday’s accord. The EU will continue to prohibit crude imports from the country while banking and financial measures will remain in place. Sanctions have deprived the nation of more than $80 billion in revenue, U.S. President Barack Obama’s administration said in a statement.

Import Cut

Iranian crude imports by China, Japan and South Korea averaged about 783,000 barrels a day in 2012, down 29 percent from the previous year, according to customs data from the three countries. The three nations imported about 761,000 barrels a day during the first nine months of this year, up 1 percent from the same period in 2012.

India’s purchases are forecast to total 11 million tons in the twelve months ending March 31, a drop of about 15 percent from the previous year, Petroleum Secretary Vivek Rae said Nov. 8. That’s the equivalent of about 220,000 barrels a day.

“We can go ahead and import the contracted volume for this year,” said Rajkumar Ghosh, the director of refineries at Indian Oil, the country’s largest processor. The company has a deal to buy 1.2 million metric tons of Iranian oil in the year ending March 31, of which 0.5 to 0.6 million tons have been imported since April, he said. Middle East suppliers sell the bulk of their crude in long-term contracts.

Tanker Fleet

The insurance restrictions affected about 95 percent of the global tanker fleet because the ships are covered under rules governed by European law. Carrying Iranian oil would invalidate ships’ insurance against risks including spills and collisions, according to the International Group of P&I Clubs. The Japanese government started providing sovereign cover for its tanker operators while India was due to consider a 20 billion rupee ($320 million) fund to help cover imports.

“This is a precursor to overall easing of Iran sanctions,” P.P. Upadhya, the managing director of Mangalore Refinery, said by phone yesterday. “We are importing about 500,000 tons every month since August, so we should reach our 4 million-ton plan by March.”

The accord will let Iran raise exports by nearly 300,000 barrels a day from last month’s level, said Olivier Jakob, managing director of consultant Petromatrix GmbH.

IEA Estimates

Imports fell to 715,000 barrels a day in October, compared with 1.26 million in the previous month, the International Energy Agency said in a Nov. 14 market report. Shipments from the country still averaged 1.1 million barrels a day in the first nine months of this year, according to the IEA.

The combined effects of oil, shipping and financial restrictions caused buyers of Iranian crude to take less than sanctions allowed, Jakob said by phone from Zug, Switzerland. By loosening sanctions on insurance, the agreement will enable importers to buy their full allotments, he said.

Showa Shell is “closely monitoring” the situation around sanctions, Satoshi Yoshida, a Tokyo-based spokesman for the refiner, said by phone today. The company imports crude from Iran based on annual term-contracts. An official for JX Nippon Oil & Energy Co., Japan’s biggest refiner, couldn’t comment immediately when called today.

Insurance Pool

“We are waiting to see how things will unfold from now on but it’s too early to say whether we will expand our imports,” SK’s Lee said by phone today. “If things work out well, we are willing to take a positive perspective on this lifting of the sanctions.”

Hindustan Petroleum plans to import 0.8 million tons of Iranian crude by March if it can begin shipments next month, B.K. Namdeo, director of refineries at India’s third-largest state-run refiner, said yesterday. The country’s processors are unlikely to exceed their targets in the current financial year, he said.

“We will be able to start importing Iran crude even without the government’s insurance pool,” Namdeo said.

In June 2012, there were 23 importers of Iranian crude; today, only six remain - China, India, South Korea, Japan, Turkey and Taiwan, according to U.S. officials.

To contact the reporters on this story: Debjit Chakraborty in New Delhi at dchakrabor10@bloomberg.net; Yuji Okada in Tokyo at yokada6@bloomberg.net

To contact the editor responsible for this story: Pratish Narayanan at pnarayanan9@bloomberg.net

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