Oil Slump, US Sanctions Push Iran to Desperate Sales Tactics

In the ongoing saga of the oil price slump triggered by the coronavirus or Covid-19 global pandemic, the sub-plot of Iran – a key OPEC crude exporter sanctioned by the US and one of the world’s most troubling pandemic hotspots – has largely gone under the radar.  

On a humanitarian level attention is focused on the alarming spread of Covid-19 in Iran. For in a space of four weeks, the number of confirmed Covid-19 cases have jumped from 61 to over 60,000, and the number deaths from 12 to over 4,000, going by official figures. Unofficially, the medical community fears the toll maybe much higher.

Several calls have been made by Iran to ease the oil sanctions, something U.S. President Donald Trump is having none of. But with oil prices at historic lows, it is questionable what Tehran can or cannot do with its oil wealth. Of course, that doesn’t mean it isn’t trying.

Behind the scenes and in dire need of petrodollars, research suggests Iran is doing the utmost to monetize its barrels as best as it can with several tricks up its sleeves carrying a mixed degree of success. For starters, it is exempt from any quota cuts initiated by the OPEC+ producers’ group, including the recent cut of 9.7 million barrels per day (bpd) fronted by Saudi Arabia and Russia.

While Iran is producing at will, a two-way partnership with China has largely kept it going. The tie-up takes the form of a part-cash and part-kind arrangement, i.e. petrodollars from Beijing plus a return in kind via oil barrels for a $5 billion injection into Iran’s Yadavaran and Azadegan oilfields.

International data aggregator Kpler reckons the volume of crude oil loaded in Iran bound largely for China came in at around 160,000 bpd in March, down from 248,000 and 254,000 bpd in February and January respectively. While it is a decline, the reduction in volume has as much to do with China’s reduced appetite for oil imports given its own demand slump caused by Covid-19.

But in the new crude world of ‘lower for longer’ oil prices, Tehran is desperately looking to shift cargo less directly and more discreetly with a ‘Covid-19 discount’ to other markets via various canny moves. More so as China’s current takings are nowhere near its average Iranian importation level of 925,000 bpd, recorded in the immediate aftermath of the loss of U.S. sanction waivers in June 2019.

Once such technique, according to TankerTrackers.com, a specialist outfit that chases crude cargo vessels via satellite imagery, involves switching off the ‘automatic identification system’ on ships that are carrying Iranian oil to mask them. 

Another is keeping dispatch volumes low in the region of loading 100,000 barrels or less, and the rebranding of Iranian to Iraqi oil simply by switching tags on the sides of the tanker trucks, moving oil across the porous border between the two countries and dispatching from Basra; a much harder feat to pull off than has been reported in the media. Moving barrels to Adriatic ports via Turkey is plausible on paper too.

The U.S. continues to sanction Iran’s two key tanker firms – National Iranian Tanker Company (NITC) and Islamic Republic of Iran Shipping Lines (IRISL). However, if approached via Adriatic ports, excluding those of Italy and Croatia, as your correspondent arranged two weeks ago, both NITC and IRISL continue to offer oil cargoes for delivery in Albania, Montenegro, Bosnia and Herzegovina.

Contacts claim Iranian oil is also being sold not just at a substantial discount to the Brent benchmarked spot price, but NITC and IRISL even offer cost, insurance, and freight (CIF) cargoes at free-on-board (FOB) pricing; a substantial price incentive.

“Overall, $8-10 per barrel discount to prevailing Brent prices is commonplace for cargoes hoping to be moved via Turkish ports to the Adriatic,” alleges one shipping contact in Istanbul, Turkey; a country that both enjoys positive relations and shares a large border with Iran.

But officially, Turkey stopped purchasing Iranian oil in May 2019 and Turkiye Denizcilik Isletmeleri, the country’s maritime organization, describes such allegations as “baseless and untrue.” Independent verification is next to impossible, more so, if onshore movement is rebranded as Iraqi and not Iranian oil. Turkey’s largest oil refiner Tupras for its part claims it has halted all imports from Iran.

Of course, masking of cargo origins is not going to go away. In February, the U.S. arrested five people for allegedly using a Polish shell company to shift Iranian crude to a “refinery in China.” Yet, for all of this desperation the squeeze is hurting. Before the re-imposition of U.S. sanctions, Iran was exporting 2.5 million bpd, according to S&P Global Platt’s. This fell to 1.1 – 1.3 million bpd at the time of the cancellation of U.S. sanction waivers.