Pakistan looks east as Iranian gasoline supply dwindles

A recent drop in Iranian gasoline exports has sent ripples through the Mideast Gulf market, forcing major importers such as Pakistan to look to Asia-Pacific for supplies.

Iran's gasoline exports almost ground to a halt in July and August as the country navigated the transition from Hassan Rouhani's government to the new administration of Ebrahim Raisi. A directive from Iran's oil ministry to scale back exports to ensure storage tanks at distribution and export terminals were full ahead of the start of the new administration's term was a key factor. There was also a changing of the guard that saw many companies involved in exporting refined products during the previous government's time in office make way for firms affiliated with the new regime to take on the challenge in the face of sanctions, market sources told Argus.

Prior to the drop in exports this quarter, roughly 300,000-500,000 t/month of Iranian gasoline had been arriving at the UAE ports of Fujairah, Hamriyah and Jebel Ali, according to estimates from traders. After blending, a big chunk of this was being re-exported to Pakistan, but those flows have since declined sharply. "The usual blenders are nowhere to be seen and their tanks are empty," one trader said. "Iranian barrels have not landed in Pakistan since July."

At the same time, overland fuel smuggling from Iran to Pakistan has also become complicated. An average of 20,000 b/d of gasoline was smuggled on this route last year, according to estimates from consultancy FGE. But to prevent illegal trade, Pakistan has now imposed a quota on how many trucks are allowed to cross the border, creating unrest in border communities that have profited from the illegal trade for years. Pakistan is due to complete building a fence along the Iranian border by the end of this year. The two governments signed an initial agreement in April to establish "border markets" to promote legal trade, but it is unclear how such markets would operate.

Pakistan typically relies on imports to meet around 70pc of its gasoline needs. The country imported 440,000t of gasoline in July and 515,000t in August, according to Vortexa. Another 641,000t is expected to arrive this month. But at the same time, imports from the UAE have been dropping significantly — from 339,000t in June to 246,000t in July and 142,000t last month. Just 85,000t is expected in September.

Look east

Suppliers in Asia-Pacific including China have benefited from the decline in Iranian gasoline exports. Pakistan had already emerged as a new outlet for Chinese gasoline following its switch to the oxygenated Euro-5 standard specifications for gasoline on 1 August. Most Chinese gasoline cargoes are oxygenated and low-sulphur, in line with Pakistan's new specification.

The amount of gasoline moving from China to Pakistan has increased since the specification shift, and more cargoes have appeared on shipping fixture lists for September loading, traders said. There have also been rare exports to Pakistan from Singapore, with government agency Enterprise Singapore reporting that 465,000 bl of gasoline was shipped to Pakistan in the week to 15 September.

Pakistan is not the only country being forced to look east for gasoline supplies. Amid unfavourable arbitrage economics to import supply from west of the Suez Canal, Iraq recently awarded a mini-term tender to China's Unipec and Sinochem. Cargoes being pulled out of Singapore and into the Mideast Gulf have lent support to gasoline prices. The Argus 92R gasoline price was at a $7.16/bl premium against Ice Brent crude on 17 September, compared with $6.48/bl on 1 September.

By Ieva Paldaviciute and Aldric Chew