Iran oil flows to Europe but problems loom large

While more Iranian crude is beginning to enter Europe after sanctions were lifted this year, the state’s unwillingness to sweeten term for buyers is curbing export growth. A lack of access to storage facilities is also problematic.

Some 45 million to 50 million barrels of Iran’s oil are estimated to be held in tankers at sea. Xinhua / Ahmad Halabisaz

Iranian oil flows to Europe have begun to pick up from a slow start after sanctions were lifted in January, but trading sources say a lack of access to storage part-owned by Tehran’s Arabian Gulf rivals now looms large on a list of obstacles.

European countries accounted for more than a third of Iran’s exports, or 800,000 barrels a day, before the European Union imposed sanctions in 2012 over its nuclear programme.

Since January, Tehran has sold 11 million barrels to France’s Total, 2 million barrels to Spain’s Cepsa and 1 million to Russia’s Litasco, according to Iranian officials, traders and ship-tracking data. Some of these cargoes will not arrive in Europe before mid-April.

With most US sanctions still in place, there is no dollar clearing, no established mechanism for non-dollar sales and banks are reluctant to provide letters of credit to facilitate trade.

A new initiative by international ship insurers has helped, but traders say exports have been hampered by Iran’s unwillingness to sweeten terms for potential European buyers.

Iranian oil officials and international traders have also grown increasingly concerned by a delay regaining access to storage tanks in Egypt’s port of Sidi Kerir on the Mediterranean coast, from where it supplied up to 200,000 bpd to Europe back in 2011.

“As of now, there is no tankage for Iran there. Before sanctions, it was Iran’s main terminal for supplies to Western nations,” one Iranian oil source says.

Four traders with western oil majors and major trading houses say Iranian officials have notified them Iran cannot get access to the Sumed-owned terminal for now and so could not supply them with crude from there.

Sidi Kerir, which connects to the Red Sea via pipelines also owned by Sumed (Arab Petroleum Pipelines Company) allows Iran to deliver oil much more quickly than if it goes by ship from Iran’s Kharg Island terminal, which takes nearly a month.

As global crude output has outpaced consumption, storage space has become increasingly prized, in sharp contrast with 2011, when Iran could lease tanks in Sidi Kerir and the world struggled to produce enough oil to meet demand.

Sumed is half owned by the state-run oil company Egyptian General Petroleum. The other half is owned by the UAE, Qatar, Kuwait and Iran’s rival Saudi Arabia, with which it is vying for influence across Middle East.

“There is competition for market share and they don’t want Iran to lease storage there. Of course, not having storage will hurt Iran’s exports to Europe,” the Iranian source says, adding he still hoped to gain access to some storage in April.

Sumed was not immediately available for comment. It has given no indication it opposes Iranian involvement, and Egypt’s petroleum minister Tarek El Molla said in November the lifting of sanctions against Tehran should help ramp up flows through the port and its nearby terminal.

Opec Gulf members led by Saudi Arabia have repeatedly said they are looking to protect and expand their footprint in key Asian, European and US oil markets, where they have lost out in the past few years because of a boom in non-Opec supply.

Iran, Opec’s third-largest producer, has said it hopes to overcome most of the financial, legal and logistical obstacles it has faced this month, but shipping data suggest the path is far from smooth.

Some 45 million to 50 million barrels of Iran’s oil are estimated to be held in tankers at sea, barely changed from the amounts thought to be in floating storage before sanctions were lifted at the start of the year.

A tanker with one million barrels of Iranian crude, the Distya Akula, has been anchored off Suez since February 24, as Iran has been unable to find a buyer, traders say.

They also say Greece’s Hellenic Petroleum, a major buyer of Iranian oil prior to sanctions, has been unable to secure financing for deliveries and has yet to restart purchasing oil.

Several trading sources say Hellenic would now rely on Total to ship Iranian oil.

Hellenic says the company had an agreement with Iran on January 22 for the payment of 2011-2012 crude oil purchases that was subject to compliance with international rules and banking regulations, but did not comment on any recent developments.

Total could not be reached for comment.

Other major pre-sanctions buyers in Europe such as Shell, Italy’s Eni or traders Vitol, Glencore and Trafigura, have not resumed buying, traders say.

Before 2012, Iran exported about 2 million bpd of oil, most of it to Asian countries, which informally agreed to limit their collective purchases to around 1.2 million bpd once EU sanctions came into effect. The United States has had sanctions on Iranian oil since the 1979 revolution in Iran.

An Iranian official said last week exports had risen by 900,000 barrels per day to 2.2 million bpd in the past two months.

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