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South Korea to resume buying Iranian crude in September
Will ask Iran to deliver the crude, cover insurance risk; Chinese, Indian buyers have also asked Iran to deliver; Korean deal almost reached, government source says; First cargo could arrive end September or early October; Asia's big-four buyers take over half of Iran's exports
August 8, 2012 4:22 by Reuters
South Korean refiners plan to resume buying crude from Iran in September after a two-month hiatus due to a European Union embargo that made shipping the oil difficult, government and refining sources said on Wednesday.
The refiners have, like their Chinese and Indian counterparts, asked Iran to deliver crude on Iranian tankers, government and industry sources said. This shifts the responsibility to Iran for insurance, sidestepping a ban in the EU on insurers from covering Iranian shipments.
Iran has a major interest in keeping its crude flowing to South Korea, China, India and Japan because they are its top four customers. They buy more than half of its oil exports.
They have slashed Iranian purchases this year, though, under pressure from EU and U.S. sanctions that aim to squeeze Tehran’s oil income and curb its nuclear programme. The West suspects Iran wants to develop weapons, which Tehran denies.
Sources said Iran’s crude exports dropped to about 1.1 million barrels per day in June and July from more than 2 million bpd at the start of the year. At current prices, the lower volume means the loss of some $110 million a day in export earnings.
Japan and South Korea, Iran’s third- and fourth-biggest oil buyers, both halted imports in July as they scrambled to work out how to continue imports under the EU sanctions, which have made it tough to ship, insure and pay for Iranian oil.
EU insurers underwrite most maritime shipping, and insurers elsewhere have been unable to offer cover for the billions of dollars in claims that could stem from a spill.
The EU sanctions came into force on July 1, after new U.S. sanctions targeted at financial transactions for oil purchases took effect in late June.
CLOSE TO A DEAL
South Korean refiners and the National Iranian Tanker Company (NITC) are close to finalising a deal that would allow loading to resume from September, sources said.
“Refiners have requested Iran to deliver crude, and the deal is almost reached,” a government source with direct knowledge of the matter said.
If there’s a deal allowing refiners to load crude in September, the first cargo should arrive in South Korea at the end of that month or in early October, the source, who declined to be identified due to the sensitivity of the subject, said.
Two refining sources confirmed the request had been made to NITC. SK Energy and Hyundai Oilbank are the only two South Korean refiners that import Iranian crude.
The refiners would buy a similar quantity of oil as they had prior to the July stoppage, sources said. There may be some variance month by month due to the size of vessels available for imports from NITC, one refining source said.
In the first six months of 2012, South Korea’s imports of crude from Iran stood at 190,000 bpd, down 17 percent on the year. Imports in June were just over 176,000 bpd.
Tehran offered to provide up to $1 billion of insurance cover to Iranian vessels shipping oil to South Korea, Reuters reported last month.
China, Iran’s biggest customer, which has cut its Iran crude imports by 21 percent in the first half of the year, has agreed for Iran to deliver its oil to get around the EU insurance ban.
China has nominated full contract volumes for August deliveries of about 520,000 bpd, about half of Iran’s exports.
Refineries in India, the second-biggest buyer of Iranian oil, have also asked Iran to deliver its crude. India’s state-run insurers can provide some limited cover for importers, although shippers have yet to use it, saying the promised cover is insufficient.
During the first half of 2012, India’s purchases of Iranian crude were steady compared with 2011, but it cut them by 18 percent in June.
Japan, which cuts it first half purchases from Iran by one-third, has taken a different approach with a sovereign insurance scheme to cover its importers.
(Additional reporting by Florence Tan; Editing by Simon Webb and Himani Sarkar)