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Greece, traders work on deals to replace Iranian oil

Greece, traders work on deals to replace Iranian oil

Major traders are in talks with Greece to supply crude oil and help the country cut reliance on Iranian oil ahead of a European ban, in a sign that they are happier about Greece's creditworthiness following a second debt bailout.

February 25, 2012 12:25 by

Greece turned to Iran as a supplier of last resort last year despite pressure from Washington and Brussels to end trade as part of a campaign against Tehran’s nuclear programme that the West says is for arms and Iran says is for energy.

Greece relied on Iran for more than half of its oil imports during some months last year after traders and oil majors pulled the plug on supplies and banks refused to provide financing for fear that Athens would default on its debt.

But the outlook has changed after Athens clinched a landmark second bailout programme on Tuesday for new financing of 130 billion euros.

Pressure is rising to cut imports of Iranian oil ahead of July, when a EU embargo on Iranian supplies comes into force.

Traders told Reuters that Swiss-based Totsa, the trading arm of French oil major Total, and trading house Mercuria were in separate negotiations with Greek refiner Hellenic Petroleum to help it replace Iranian crude.

Glencore, a leading Swiss-based commodities trader and one of the few that conducted business with Greece during the debt crisis, may also boost supplies, trading sources said.

Hellenic would pay back the traders with refined products, which could then be sold in Greece or abroad.

Hellenic, Total, Glencore and Mercuria declined to comment.

Two industry source said talks were at advanced stages. A third industry source said negotiations were at an early stage.

“If something were to happen, it would be unlikely before summer,” one source said.

Hellenic acknowledged earlier this week that it was buying oil from Iran and paying for the shipments later, terms known in industry jargon as open credit terms. But the refiner also said that replacing Iranian oil would be “easy” with supplies from Saudi Arabia, Iraq and Russia.

Traders expect the terms offered by alternative oil suppliers to be far less generous, as many are still unable to enter into agreements with Greece because of the risk associated with the country’s debt.

Part of the reason for swapping crude oil for products is that Hellenic is unable to obtain letters of credit from banks because of lingering default fears.

“They have liabilities and banks could come in and demand payment,” said a London-based trading head who decided not to enter talks with Hellenic, saying it was too risky for his firm.

However, Greece’s second bailout this week provides reassurance that any crude supplied to a refinery would not be caught up in a messy national default.

Hellenic, which has 350 million euros of debt maturing this year and 1.3 billion in 2013, has started refinancing discussions with banks. It said it hoped that the bailout deal would allow Greece to return to markets and ease Greek companies’ refinancing strains.

Greece, which has no domestic production, relies on oil imports and in some months last year Iranian oil’s share soared to more than 50 percent as supply from other places dropped.

By comparison, in 2010 Greece imported 46 percent of its crude from Russia and 16 percent from Iran. Saudi Arabia and Kazakhstan provided 10 percent each, Libya 9 percent and Iraq 7 percent, according to data from the European Union.

Russian and Saudi oil is seen by traders as a likely replacement for Iranian oil as part of a deal to exchange crude for products.

Greece’s four refineries, belonging to Hellenic and Motor Oil, together can process around 400,000 barrels per day but that figure has fallen in recent months due to upgrades and maintenance.

Iran has threatened to retaliate to EU sanctions by fully shutting off supplies to the bloc ahead of the embargo. It said this week it has already suspended deliveries to UK and French companies.

Greek petroleum products used to be among Europe’s cheapest before the country’s debt crisis. But since a 2010 bailout agreement with the EU and IMF to stave off a chaotic default, they have become among the most expensive.

“It makes sense that they could do something like that as they don’t have to issue letters of credit for the crude, and of course, Greece does have the refining capacity, and overcapacity even, as consumption has dropped here, so this would be a win-win situation,” said an oil shipper based in Greece. (By Jessica Donati and Dmitry Zhdannikov) *image from

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