Sanctions May Cut Oil Flow as Ships Cancel Voyages

Thursday, March 08, 2012

U.S. and European sanctions designed to pressure Iran over its nuclear program may be cutting the Persian Gulf nation’s oil exports, as vessels cancel trips to the country.

Shipments have declined by 300,000 to 400,000 barrels a day, because sanctions are preventing Iran from selling oil, said Amrita Sen, an analyst at Barclay’s Capital in London. Half of the tankers booked to load at the country’s largest terminal last month didn’t complete the voyages, according to brokers, company officials and ship-tracking data. Ship owners are avoiding trade with Iran because U.S. financial sanctions are blocking payments, and the main providers of cover against risks, such as oil spills, are subject to the European Union’s ban on the purchase, transportation, financing and insurance of Iranian oil. While the EU embargo, approved January 23, exempts pre-existing contracts until July, it has already made fewer ships available to carry Iranian crude.

“Iran is finding it increasingly difficult to sell crude, and their production is sliding,” said Leo Drollas, chief economist at the Centre for Global Energy Studies. “They are suffering, there’s no doubt.” Iran, the Organization of Petroleum Exporting Countries’ second-largest producer, pumped 3.45 million barrels a day last month, the lowest level since September, 2002, according to data compiled by Bloomberg. Oil sales earned Iran $73 billion in 2010, accounting for about 50 percent of government revenue and 80 percent of exports, the U.S. Energy Department estimates.

Twenty-two tankers were booked to call at Kharg Island in February, according to brokers, including New York-based Poten & Partners Inc. Eleven of the ships failed to load cargoes totaling 1.88 million deadweight tons, or about 13.8 million barrels, according to ship-tracking data and company officials. New York-based  Overseas Shipholding Group Inc. (OSG), Hamilton, Bermuda-based Frontline Ltd. (FRO) and owners controlling more than 100 supertankers said that they would stop carrying Iranian oil. Mitsui O.S.K. Lines Ltd. And Nippon Yusen (9101) K.K., the world’s two largest owners of the vessels, said they won’t ship the country’s crude without insurance.

The EU embargo affects 95 percent of the world’s tankers because they are insured by the 13 members of the London-based International Group  of P&I Clubs, according to Andrew Bardot, its secretary and executive officer. Carrying Iranian oil invalidates ships’ coverage against risks including spills and collisions, he said January 26. Asian insurers are also affected, because they buy reinsurance from the International Group.
The Asian Progress II, a supertanker owned by Mitsui (9104) canceled its trip to Iran, according to Poten & Partners. Akika Hamakawa, a Mitsui spokeswoman, declined to comment.  (Bloomberg)

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