Tehran digs in ahead of possible US oil sanctions

Iran's oil ministry and state-owned NIOC have been modelling a range of scenarios around the US breaking the nuclear-related treaty (JCPOA) between Iran and the international community. Officials believe they have plans in place for any eventuality. But that does not mean US re-imposition of oil sanctions would not hurt.

"Trump's decision, no matter what it is, will not turn back the clock and return the conditions the oil industry was facing before 1392 [March 2013 to March 2014] and during the sanctions." deputy oil minister for international affairs Amir Hossein Zamaninia says.

The major concern in Tehran is not around volumes of crude that it could sell — not in the short to medium term at any rate — but over transfer of payments for those volumes. "For us, the period while we were under sanctions was the hardest for us when it came to transferring our oil money," NIOC managing director Ali Kardor said. "We were faced with delays, and backlogs of resources. There were delays, but eventually the transfers were carried out. [Should the US pull out of the JCPOA], it will not be worse than this."

"With South Korea, we do not have a contract for very large volumes," he said, by way of example. But, in the past, when we were still under serious UN sanctions, this country still would buy [crude from us]. We of course had problems transferring money, but they ultimately happened, just with delay."

India owed Iran $10bn for crude by the time sanctions ended in 2016. That has now all but been repaid.

The 2012-2016 sanctions period provided Iran and its customers with experience in maintaining sales and payments despite being locked out of dollar-denominated trading. "Iran has many different methods and mechanisms in mind that it can use and has previous experience to preserve its market share," Zamaninia said recently. "This is something our marketing teams have experience with." Those marketing teams are likely to be preparing offers to take payment in euros, rupees, yen and other currencies, and proposals for cut price freight.

"A bank that is currently working with us in Germany is 100pc Iranian owned, and therefore has no worry," NIOC's Kardor said. "Sanctions, in this regard, would make no sense, unless of course the whole banking system is hit or stopped. This is unlikely."

The EU and individual European countries are strongly opposed to breaking with the JCPOA and Tehran hopes this will translate into the continuation of crude imports. As long as European crude imports are not affected, Iran is confident the US decision on JCPOA will not affect them dramatically.

Europe now takes roughly 30pc of Iranian crude exports. Kardor has said that many of NIOC's European customers have recently renewed or extended their annual term contracts with Iran. "They would not have concluded these new extensions if they did not want to," Kardor said. "Internationally acclaimed companies do not sign such contracts easily or without thought — they certainly have a strategy."

"Thankfully, in the Asia-Pacific region, they demand the type of crude that we produce," Kardor said. "Heavy Bahregansar and ultra-heavy West Karun crude that is now in production are also in demand from the east Asians. These countries combine our heavy crude oil with some gas condensate, and we give them a decent price."

Iran is able to store crude to avoid having to sell it at a discount in the short term. It has no crude or condensate in floating storage at the moment, the managing director of state-owned Iran Oil Terminals (IOTC) Pirouz Mousavi said. It would be "ready to manage with any increase in the coming months, as per any oil ministry plans", he said.

Prior to JPCOA, Iran's state-owned National Iranian Tanker Company (NITC) was forced to use its fleet almost exclusively for shipments between Iran and Asia, or to hold oil in floating storage. Japan — which received shipments from NITC-owned vessels before and after the deal — reaffirmed its willingness to insure Iranian cargoes last month.

But renewed sanctions could jeopardise NITC's ongoing return to European waters.

NITC has one the world's largest very large crude carrier (VLCC) fleets, of some 42 vessels. Following the relaxation of nuclear-related sanctions, NITC adopted the Panama flag for the majority of its fleet, and then secured protection and indemnity (P&I) coverage — which does not cover the vessel and cargo but rather third party risks, war risk, and pollution —through a series of European insurance clubs in August 2016. This helped facilitate the company's re-entry into European markets, beginning with the Suezmax the Sonia 1, which delivered a 1mn bl crude shipment to Algeciras in December the same year.

NITC-owned very large crude carrier (VLCC) the Huge was the first to embark on an Iran-Europe delivery after sanctions were eased. The vessel arrived at the port of Rotterdam in February 2017 to deliver a 2mn bl crude cargo, and was subsequently chartered in the spot market by Glencore for a Rotterdam-east Asia shipment. NITC-owned VLCC the Snow is scheduled to arrive fully-laden at the Spanish port of Algeciras on 10 June.