South Korea, Iran discuss restart of oil trade

Iranian and South Korean officials have held talks about resuming oil trade when and if US commercial sanctions lift on Tehran, the northeast Asian country's foreign ministry said.

The two discussed "trade in crude oil and petroleum products on the premise that sanctions will be lifted following progress in the nuclear negotiations in Vienna," the ministry said. A trade source said Iran's state-owned NIOC is reaching out to key customers to discuss their restarting oil purchases, particularly the condensate Iran has placed in floating storage.

Iran's delegation, which comprised officials from the central bank, oil ministry and NIOC, also addressed the around $7bn that is frozen in South Korean banks by nuclear-linked US sanctions. The meeting come as public statements by the US, Iran and other parties suggest the talks aimed at restoring the 2015 Joint Comprehensive Plan of Action (JCPOA) nuclear deal are progressing.

"This is the final decisive period during which we will be in a position to determine whether a mutual return to compliance with the [JCPOA] remains a possibility," the US State Department said this week. "Our European partners as well as China and Russia — all of us urgently seek to achieve an understanding, but time is almost out."

South Korea has historically been a large buyer of Iranian crude and condensate, and it benefited from a six-month waiver after the US reimposed restrictions that allowed it to continue purchases until May 2019. Argus tracking indicates South Korea purchased 154,000 b/d of Iranian crude in 2017, and an average 94,000 b/d in the first six months of 2018. In the latter period it bought 173,000 b/d of condensate loaded from Iranian terminal Assaluyeh.

US sanctions have deterred the majority of Iranian crude purchasers, which now number mostly Chinese outlets that pay sharply discounted prices. Occasional shipments head to Syria but visibility is limited with many cargoes carried on tankers operated by state-owned NITC, which turn off their transponders. Iran's crude exports were in a 750,000-800,000 b/d range in January, Argus estimates, when its production was 2.5mn b/d.

The need to strike banking and shipping arrangements could prevent Iranian oil from instantly reaching buyers when and if US sanctions are lifted. Iran will probably prioritise selling supplies from floating storage, although some analysts wonder if the length of time it has spent in tankers will have impaired its quality.

Any return of Iran's heavy sour crude could prove a boon to an increasingly tight global market, at a time when Opec+ spare capacity is gradually dwindling and there are risks of sanctions against Russian exports. Venezuela, another sour crude exporter, is also under US-imposed restrictions.

By Ruxandra Iordache