Irans oil exports have increased so far this year, according to Bloomberg calculations, a trend that threatens to violate U.S. sanctions on the Islamic Republics main source of revenue.Shipments of Iranian crude oil and condensate have increased about 28 percent on average this year, according to an analysis of customs data from importing nations and figures from the International Energy Agency in Paris. If crude sales are up by the end of July, that would break an international accord to hold Irans oil exports at the same level in the first half of this year that they were at in the previous six months.
Questioned in Congress yesterday about possible sanctions violations, an Obama administration official who monitors Irans oil exports said hes confident that Iranian crude shipments have remained within the limits set in a six-month agreement signed Jan. 20 that granted Iran some sanctions relief in exchange for limited nuclear concessions.
Where we are today, we feel comfortable that the crude oil exports of Iran are remaining in the 1 million to 1.1 million barrels per day average, Amos Hochstein, deputy assistant secretary of state for energy diplomacy, testified before the House Foreign Affairs Committee.
The U.S. Congress passed legislation in December 2011 to curtail Irans oil exports in an effort to deprive the Persian Gulf state of its leading foreign revenue earner to pressure its leaders to accept constraints on a suspected nuclear weapons program. A month later, the European Union approved an embargo on Iranian oil purchases by its members.
Six Buyers
Only six buyers are still allowed to take crude from Iran - - China, India, Japan, South Korea, Turkey and Taiwan -- down from 21 before the restrictions went into effect in mid-2012.
Among the reasons that exports in the first few months of this year look higher are seasonal variations in oil purchases and the fact that reporting lags shipments and that customs data are sometimes revised, according to two U.S. officials who werent authorized to be quoted.
Another reason is that while Indias crude imports from Iran were up significantly in the first few months of this year, its refiners have signed contracts for lower purchases in the coming months, which should bring down Irans average exports by July, the officials said.
The Obama administration says Irans oil exports have been reduced by more than half from 2.5 million barrels a day before sanctions. The U.S. also says Iran is losing as much as $5 billion a month in oil revenue.
Iranian Minister
Customs and other publicly available data, though, show that Irans exports of crude and condensates rose to an average of 1.33 million barrels a day in the first four months of this year from 1.04 million barrels a day on average in 2013, according to Bloomberg calculations.
Iranian Oil Minister Bijan Zanganeh, asked by a reporter at an OPEC meeting in Vienna yesterday, gave a higher figure, saying the Persian Gulf producer is exporting 1.2 million barrels of crude oil and 300,000 barrels of condensate a day.
U.S. officials say Iran consistently inflates trade figures to create an illusion that sanctions are crumbling.
Using customs and ship-tracking data to assess Irans oil export quantities is complicated by the fact that crude and condensates can be transported by the same type of tanker or blended together and that some countries combine the two in their import data.
Condensate, a light petroleum liquid often found with oil or gas, is not restricted by U.S. sanctions as long as the buyer nation was granted a waiver from the sanctions by reducing the amount of crude oil it buys from Iran.
Chinese Purchases
China has considerably increased its purchases of Iranian condensate this year, and that has inflated overall import figures, according to the two Obama administration officials who spoke on condition of anonymity. U.S. officials say Iran may be offering China and other customers significant discounts on condensate and crude in an attempt to keep sales flowing despite punishing sanctions.
Although Iran exports condensate in much smaller quantities than crude oil, the product fetches higher prices because its easier and less expensive to refine into gasoline or diesel fuel.
Richard Mallinson, an analyst at Energy Aspects Ltd., a London-based consultancy, said Iran is set to sell an average of more than 1.3 million barrels of crude oil and condensates a day in the first half of the year, up from last years combined average of 1.06 million barrels, he said.
Higher Exports
However you choose to define it, exports are running higher than they did last year, Mallinson said in a phone interview. Whats become clear is that for the U.S., achieving a comprehensive deal to curb Irans nuclear program is too valuable to risk over the fact that Irans oil exports will be more than the desired levels.
Mark Dubowitz, executive director of the Foundation for Defense of Democracies in Washington, whos advised Congress on ways to tighten sanctions against Iran, said lenient enforcement of oil sanctions during the negotiations sends a bad message.
If this is an example of how strictly they will enforce any final nuclear agreement with Iran, then Iran should feel more confident that they will be able to exploit any loopholes with impunity, he said.
Questioned at yesterdays House hearing by Representative Ted Deutch, a Florida Democrat, the State Departments Hochstein explained that while most publicly available figures count crude and condensate together, the U.S. government has more accurate measures for determining if countries buying crude from Iran are complying with U.S. sanctions.
U.S. Rebuttal
We have a lot of concerns, we are actively engaging, but we believe that countries have kept tight, Hochstein said.
Hochstein also said that due to sanctions, payments for Irans oil arent made in hard currency; theyre still going into local-currency escrow accounts that Irans government may use only to buy goods in the importing nation.
They are not getting the money and the access to the cash, Hochstein said. That money is still going to accounts that are blocked in those countries and have to remain, under certain conditions, in those countries.
China, which remains the biggest buyer of Iranian crude and showed the largest increase in purchases this year, is a U.S. partner in negotiations aimed at constraining Irans nuclear activities. Sanctioning oil buyers such as China by blocking their banks from the U.S. financial system could derail international unity in negotiations on a nuclear accord.
Price Pressure
Having a little more Iranian oil than was expected at the beginning of the year has been helpful, Mallinson said. We havent seen the usual mid-year price slide, which shows we came into the year quite tight. Iran pumping more crude did help, but not enough to bring down oil prices.
Brent crude has slipped 0.8 percent this year to $109.95 a barrel in London as of June 11.
Deutch and Florida Republican Representative Ileana Ros-Lehtinen also challenged Hochstein over reports that Iran this year has begun exporting oil to longtime ally Syria.
Over the last few months, Iran has begun to direct shipments of crude oil to Syria for the first time because Syrias regime can no longer buy crude on the open market, Hochstein said. But that is a very different kind of delivery, he added, because Iran is giving the oil to its embattled ally for free. This doesnt contribute to the overall economic benefit to Iran.
Free Oil
China remained the biggest buyer of Iranian oil, importing an average of 620,710 barrels a day of crude and condensate in the first four months of the year, according to customs data from the worlds largest energy importer. The country, which imported an average of 430,585 barrels of crude and condensate a day last year, also accounted for the biggest increase in imports of Iranian fuel.
The next round of talks between Iran and the five permanent members of the United Nations Security Council -- China, France, Russia, the U.K. and the U.S. -- plus Germany is scheduled to start June 16 in Vienna.
This week, senior U.S. officials held bilateral discussions with Iranian officials in Geneva in an effort to press Iran to be more realistic in its demands for a civilian nuclear program and assess whether its feasible to reach a final deal before the interim agreement expires July 20. Both sides have said an extension of the current deal is possible.
Civilian Purposes
Iran says its nuclear program is only for civilian energy and medical research. The U.S. and other world powers accuse Iran of seeking a nuclear weapons capability.
Bloombergs calculations for Iranian exports use data from the International Energy Agency for India because that countrys customs figures were not available for this year. Turkeys averages purchases are based on data for the first three months of the year provided by Turkeys government. Taiwan said it hasnt imported any Iranian crude yet this year.
The following is a table of purchases of Iranian crude and condensate calculated from customs and import data provided by national authorities in each of the buyers listed:
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Average purchases of Iranian crude in bbl/day
Buyer Jan.-April 2014 2013 China 620,710 430,585 India 316,250* 178,182** Japan 151,252 180,106 South Korea 134,383 132,093 Turkey 107,726*** 105,545 Taiwan 0 15,373 Total 1,330,321 1,041,884
By Bloomberg
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