Iran’s top oil customers in Asia have cut purchases by a combined 21% in the first six months of the year, but they are still a long way short of what the US wants.
China, India, Japan and South Korea bought about 972,600 bpd of Iranian oil in the first half of 2013, down from the 1.235mn bpd in the same period last year.
This is still well short of US target to limit Iranian exports to just 500,000 bpd as part of its strategy to force Tehran to open up its nuclear programme to international scrutiny.
The US, and its Western allies, are concerned Iran is trying to develop nuclear weapons, while Tehran counters that it needs atomic power for energy generation and medical research.
It seems doubtful that Iran’s Asian customers will be willing, or able, to slash their purchases to meet the US target, but it seems clear that the pressure will remain on them to be seen to be cutting cargoes in the second half.
The next round of half-yearly exemptions from US sanctions aimed at cutting off Iran’s oil trade will be in November.
China, the top buyer of Iranian crude, probably has the most scope to cut volumes, given it bought 424,183 bpd in the first half, a drop of only 1.9% over the same period last year.
And this modest decline was only achieved right at the end of the first half by a 39% drop in June from the same month in 2012.
China plans to cut imports from Iran by 5%-10% in 2013 from 2012, meaning that it will have to slow purchases more in the second half to meet even the lower end of its stated goal.
While sourcing oil from different suppliers and ensuring sufficient volumes may present Chinese refiners with a challenge, so far there doesn’t appear to be any financial cost to cutting volumes from Iran.
China paid about $99.97 a barrel for Iranian crude in June, according to customs data.
This was only slightly cheaper that the $100.46 a barrel average for all China’s purchases in June.
It’s also interesting to note that while China’s imports from Iran dropped 39% in June from a year earlier, shipments from Iraq soared 445%.
Iraqi volumes have gained 38% in the first six months and now exceed those supplied by Iran.
Iraqi oil is also cheaper than that supplied by Iran, with the Chinese paying $97.84 a barrel in June.
While their may be slight quality differences, it appears that China has been able to replace Iranian volumes with cheaper cargoes from Iraq.
Iran’s second-largest customer, India, has done much of the heavy lifting this year in cutting volumes, with purchases from Tehran totalling 211,400 bpd in the first six months of the year, down 42.5% from the same period a year earlier.
Much the same dynamic as China is at play with India’s crude’s purchases, with Iraq stepping into the gap.
India’s volumes from Iraq gained 27.5% in the first six months.
India’s purchases of Iraqi oil went up by 127,300 bpd while those from Iran dropped by 156,400 bpd.
Figures for June imports by Japan, the number three buyer of Iranian crude, have yet to be published but imports for the first five months were 197,351 bpd, a decline of 19.8% over the same period in 2012.
With Japan’s overall crude imports trending lower as the nation closes refining units and demand declines, it will probably be fairly easy to limit purchases from Iran.
South Korea, Iran’s fourth-biggest customer, cut its imports by 26% in the first half to 139,700 bpd.
South Korea has pledged it will cut June to November volumes from Iran by 15% from the prior six month period in order to assure the renewal of its US waiver, Reuters reported June 24.
Asian buyers now account for the overwhelming bulk of Iran’s oil exports, which have nearly halved from the 2.2mn bpd exported in 2011.
There is still scope for further reductions without the imposition of financial pain, given the slowing demand growth in the region and the current global surplus of crude.
While the US and its allies have achieved success in curbing Iran’s oil trade, so far negotiations on the nuclear programme have not produced any deal.