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Oil Traders Prepare to Cut Iranian Crude on Trump Sanctions

Updated on
  • Spanish refiner Cepsa says it would seek alternative supplies
  • Buyers await clarification on scale of reductions required
FGE's Fesharaki Sees 1.5 Million Barrels of Iran Oil Removed Per Day

European oil refiners and trading houses began preparing to cut purchases of Iranian crude after Washington imposed harsher sanctions on shipments from Tehran than many in the energy industry had expected.

The Trump administration has given buyers 180 days to wind down imports after pulling out of a landmark nuclear deal with world powers. Many of the traders and refiners who spoke to Bloomberg anticipate they’ll have to curb purchases unless the European Union can secure waivers, though none said they’ve taken such action yet.

“In the case of any sanctions or embargo being imposed, we would immediately halt any operations under way and seek alternative supplies,” said Spanish refiner Cia Espanola de Petroleos SAU. One oil-trading firm, which asked not to be identified, warned employees to consult its legal and finance departments before concluding any trades linked to Iran, according to an internal memo seen by Bloomberg.

The caution reflects concern that buyers don’t yet know the scale of reductions required, nor whether condensate -- a light crude -- will be included in the sanctions. In any event, Donald Trump’s move is likely to unleash a furious lobbying effort by European governments -- which continue to back the deal with Tehran -- to win exemptions for a region that buys about a third of Iran’s oil.

Trump’s decision -- and the uncertainty for buyers -- also has implications for oil importers in Asia, Iran’s biggest market. One Asian customer said their company is already looking for other supplies. The firm has long-term contracts with Iran and needs two to three months to cut purchases and secure alternatives, the trader said, asking not to be identified as they’re not authorized to speak to the media.

Insuring Crude

Previous sanctions on Iran’s oil industry were lifted less than 2 1/2 years ago. Those penalties had been imposed by the EU as well as the U.S., whereas the latest restrictions have been introduced unilaterally. While the EU is likely to resist, a principal concern is how the fresh curbs will affect the banking and insurance industries, key to purchasing and shipping crude around the world.

The U.S. move will probably have “significant ramifications for maritime trade with Iran and the insurance of such trade,” said the International Group of P&I Clubs, whose members cover about 90 percent of the world’s tankers against risks including oil spills. Clarification from the remaining signatories to the nuclear deal will be crucial in helping traders and refiners navigate the fallout, the insurers’ group said.

EU refiners imported 421,000 barrels a day of Iranian crude last month, while Turkey purchased 252,000 barrels a day, according to data from cargo-tracking company Kpler. Among the EU countries, Italy was the biggest buyer with 245,000 barrels a day.

Key Source

Italy imported 245,000 barrels a day of Iranian crude last month

Source: Kpler SAS

Note: Trieste port used as storage, with barrels then piped to central Europe

Italian refiner Saras SpA declined to comment on the potential implications of the U.S. pull-out, beyond saying “we are extremely flexible in terms of supply” and can “cope with changes on the supply side if required.”

France’s Total SA declined to comment, while Spain’s Repsol SA and Greece’s Hellenic Petroleum SA weren’t available to respond. Spain’s Cepsa said: “We strictly conform with EU and international laws and regulations, and scrupulously respect any trade restriction.”

Europe could potentially take more crude from Iraq, Libya, Saudi Arabia and West Africa to replace Iranian supplies, energy consultant FGE said last week, adding that the biggest impact on Iranian flows would probably be felt next year if sanctions waivers aren’t renewed.

For now, tankers continue to carry Iranian crude to Europe. About 5 million barrels are on their way to France’s Le Havre and Fos-Sur-Mer refineries, while 2 million barrels are en route to Saras’s Sarroch refinery in Italy, Kpler data show.

— With assistance by Javier Blas, Andy Hoffman, Francois De Beaupuy, and Anthony Dipaola

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