Dmitry Zhdannikov, 04 February 2016

Major oil firms and trade houses are gradually resuming energy trading with Iran but efforts remain very cautious and often face huge legal obstacles, meaning a post-sanctions return to full-scale activity will take weeks if not months.

Trading sources have told Reuters that major trading houses Gunvor and Vitol have each delivered several cargoes of petrol into Iran in the past few weeks. Gunvor and Vitol declined to comment.

Meanwhile, Swiss trading house Litasco of Russian oil major Lukoil cancelled a booking of a tanker to transport oil from Iran to Italy in early February due to what trading sources described as ship insurance difficulties.

Trading sources have cited preliminary fixtures being made by Glencore and Total for tankers to lift Iranian crude in February although it was still unclear if the deals had been concluded partly due to insurance issues.

“It is still very difficult despite the sanctions removal.

“US dollar clearing is an issue, banks’ letters of credit is an issue, ship insurance is an issue. Loads of people are still very cautious,” said a senior trading executive.

Leading shipping players say efforts by Iran to start exporting oil to Europe are being held up as tanker owners still struggle to secure insurance for cargoes.

A nuclear deal between world powers and Iran in January has led to the removal of European sanctions on the country.

But many foreign firms remain wary of violating other sanctions that were imposed by the United States and have not been lifted. Measures still in place from Washington prohibit most business between US individuals, US companies and Iran as well as no US dollar trades.

Third-party liability insurance and pollution cover for vessels is provided by P&I clubs – marine insurers owned by shipping clients and re-insured internationally. The umbrella International Group of P&I clubs is still unable to confirm payments under re-insurance contracts.

“Gasoline exports to Iran are a bit easier as tankers are much smaller, insurance is easier and there are banks which are willing to do this as non-US dollar transactions,” one senior trading source familiar with the matter said.

Iran is a petrol importer despite being the third largest producer within the OPEC group as its outdated refining industry cannot meet rising petrol needs in the country.

The country has continued to import petrol regardless of sanctions but the biggest names have stayed out of the game for the past few years.

Iran’s oil exports have fallen to just over one million barrels per day (bpd0, from a peak of more than 2.5 million bpd before the imposition of tougher European sanctions in 2012.

Since the sanctions’ removal in January, Iran has ordered a 500,000 bpd increase in oil output, of which it said some 200,000 will initially go to Europe. Prior to sanctions, Europe was importing as much as 800,000.

Greece’s Hellenic Petroleum earlier in January became the first European refiner to agree to restart crude imports from Tehran and pre-sanctions buyers Italy, France and Spain are expected to follow.

Oil and gas condensate held by Iran on its domestic tankers in floating storage is estimated by shipping sources to be at least 40 million barrels and the country has said it is keen to offload volumes into the market to boost revenues.

“It will take weeks if not months to return to full-scale crude exports to Europe. Tonnes of papers will need to change hands between inhouse risk officers, lawyers and banks before the picture is fully clear,” said a trading executive involved in the discussions.

But, ultimately, oil should flow at full steam.

“It’s just a matter of price. If the price is good, we’ll buy it,” Marco Schiavetti, director of supply and trading with Italy’s Saras said of Iranian oil.

“Obviously, we will talk to them soon, and we will consider.”

Extracted in full from The Australian.