Iran hit by tough fuel sanctions

Financial Times

Tougher sanctions against Iran appeared to have halved the country’s petrol imports last month, according to a monthly report from the International Energy Agency.

As a result Iran has been forced to pay a 25 per cent premium to market prices for its petrol deliveries as many companies shy away from supplying the country, the International Energy Agency reported on Wednesday.

New sanctions introduced by the Obama administration and the EU in recent weeks go far beyond an earlier UN resolution and restrict trade and financial links between European and US companies and Iran, including the trading of gasoline.

Though Iran is one of the world’s largest producers of crude oil, it lacks the refining capacity to supply its domestic needs for petrol, which have ballooned because of Tehran’s generous subsidies.

But in its monthly market report the IEA said these new sanctions, especially those implemented by the EU last month, were having an impact on Iranian gasoline imports.

“Volumes reportedly have been reduced by half in July from May levels and spot barrels sold into Iran are fetching a premium of 25 per cent over market levels,” the IEA said.

Oil traders, such as Glencore, Trafigura, Vitol, and oil companies such as Total, began to end their petrol trade as early as March as their executives realised that the long-term threat of sanctions was about to become a reality.

But the US and Europe have not succeeded in completely cutting off Iran.

This is in part because China has taken a less accommodating stance by continuing to ship petrol to Iran and pledging to help it expand its refining capacity. Last month US diplomats warned Beijing not to fill the void left by European and US companies.

Tracking Iran’s petrol imports, like measuring much of the world’s oil trade, is an art more than a science. Analysts and governments often rely on shipping documents based on reports by companies that watch tankers as they pull in and out of harbours. Reuters has reported that one such shipping document indicated three cargoes of petrol reached Iran last month, with the supplying companies hailing from Turkey, China and Venezuela.

Meanwhile, Tehran has already moved to undercut the effect of sanctions by hording supplies, rationing consumption and announcing the intention to boost its own production of petrol by cutting output of other petrochemicals if need be. Iran has said it could replace almost 75 per cent of its imported petrol.

Masoud Mir-Kazemi, Iran’s oil minister, said the country produced 44.5m litres of refined petroleum every day and imported another 20m litres. But he said Iran’s petrochemical plants could produce another 14.5m litres of high octane fuel if needed.

“We can stop production of petrochemicals at any moment we decide and produce petrol [instead],” Mr Mir-Kazemi said.