'Iraqi' cargo rejected twice on origin, quality concern

Following the publication of this article, Napag has stated via its lawyers that all business it conducts complies with all applicable laws and regulations and that it denies - as noted in our article - in the strongest possible terms that the transaction referenced by this story involved oil originating from a sanctioned country. Napag is disputing that allegation in legal proceedings not involving Argus Media.

A contentious crude cargo that was stranded for a few weeks near the Italian port of Milazzo has been rejected by two buyers in the sale chain, amid concerns over its origin and quality.

The Suezmax White Moon departed Milazzo for the Suez Canal earlier this week, after lingering at the Sicilian terminal for around three weeks without being allowed to discharge. It was intended for the 235,000 b/d Milazzo refinery, which is jointly operated by Italian integrated firm Eni and Kuwaiti state-owned KPI.

An Italian press report alleged that the tanker may have been banned from discharging over suspicions it was carrying Iranian oil. But Eni told Argus earlier this week that it rejected the cargo over quality concerns. Loading documents suggest that the shipment was from Iraq, Eni said. The firm refused to take delivery of the shipment because its "chemical-physical specifications are different from those established contractually to an extent that makes them incompatible" with the quality of Iraq's Basrah Light, it said today.

This has been backed up by Nigerian firm Oando, the company that sold the crude to Eni. The two firms inspected the cargo "at the port of loading in Basrah... and the results were consistent with the contractual agreement between the parties", Oando said today. Eni undertook further tests at its Milazzo refinery and rejected the shipment after discovering that "certain parameters were not consistent with the agreed specifications", it said. Oando has also rejected the cargo and returned it to "our supplier... [Italy's] Napag Trading UK".

Napag Trading has yet to respond to requests for comment. "Napag Trading UK expressly represented that the cargo was not from a sanctioned country. This claim was further supported by the set of documents delivered to us clearly showing the origin of the cargo as Basrah, Iraq," Oando said.

Tracking data from analytics firm Vortexa indicate the White Moon may have taken on its cargo through a ship-to-ship transfer from the very large crude carrier (VLCC) New Prosperity in waters outside of Iraq's Basrah Oil Terminal (BOT). The New Prosperity, in turn, received its cargo from the Abyss, whose initial loading point is not clear. The Abyss previously carried shipments of Iranian crude and fuel oil prior to the expiry of Iran sanctions waivers in early May.

Meanwhile, Iraq's state-owned marketer Somo has said in a statement that none of Iraq's exported crude cargoes have been refused by any of its customers. The White Moon's shipment "has no link whatsoever to Iraqi crude oil exports", it said. Furthermore, a senior Iraqi official told Argus that Iraq is certain that the shipment is not a retraded free-destination cargo. "We know every single vessel loaded and where it is destined," the official said.

Somo has been cracking down on the resale of term Basrah cargoes since October, leaving only a handful of shipments — representing equity supply or volumes sold on a spot retradeable basis by Iraq — that can change hands freely.

The quality of Basrah Light can fall significantly short of the official specifications, but the differences typically relate to crude gravity. Somo contractually pays quality compensation for Basrah Light below 34°API, with shipping data showing the average gravity of cargoes exported in March-May at 28.87°API. Somo does not supply compensation for sulphur content, and market participants have seldom referenced volatility in Basrah sulphur content in the past.

Three market participants have told Argus they have received and refused offers to purchase crude advertised as Basrah oil or "Iraqi blend" from third-party companies, which they suspected to be mixes of sanctioned Iranian oil.

The volumes are offered at heavy discounts to official Basrah prices and do not load from BOT. Other traders said they refused offers for suspect "Oman blend" and "Iraqi blend" during the previous sanctions regime against Tehran in 2012-15.

The White Moon's disputed shipment comes against a backdrop of escalating tensions between Iran and the US, which has persisted in its strategy to drive Iranian crude exports to zero. "We are seeing historic records of compliance with US sanctions, especially oil sanctions. We have now zeroed out exports of Iranian crude oil. And we are confident that nations will comply with that," the US State Department's Iran special envoy, Brian Hook, said this week.