Western-led sanctions against Iran's oil exports aiming to push Tehran to return to negotiations on uranium enrichment have displaced from the market more than 1 million b/d of crude oil, distorting market fundamentals and affecting prices, according to the Centre for Global Economic Studies (CGES), London.
While additions to oil output by Saudi Arabia, Iraq, the US, and Canada have helped to mitigate the Iranian oil shortfall, regional refining centers—especially the Mediterranean—have been affected. And some Asian buyers have been forced to reduce their imports of Iranian crude to avoid US penalties.
As a result, CGES reports, Iran's oil production fell to little more than 2.5 million b/d in July and August from 3.5 million b/d at the start of 2012.
The country's exports have declined due to the ceasing of imports by European Union customers and lower liftings by China, India, South Korea, Japan, and other traditional customers of Iranian medium sour crude. Some estimates put crude oil exports from Iran below the 1 million b/d threshold in August, the lowest level since at least the end of the Iran-Iraq war 24 years ago, according to CGES.
A drop of this magnitude would turn the Islamic Republic from the second largest exporter in the Organization of Petroleum Exporting Countries to one of its smallest, ahead of only Algeria, Qatar, and Ecuador, the consultancy reported while positing that the drop could be temporary, caused by the difficulties arranging insurance for tanker deliveries from Iran.
"South Korea has said it will officially 'resume' oil purchases in September, while Turkey may lift oil directly from Iran in the near future. Japan, too, may resume purchases of Iranian oil after taking no deliveries in either July or August. According to the CGES's latest assessment, Iranian oil production inched up in August, driven by a slight rebound in exports. Japan and India have implemented state-backed insurance programs to cover cargoes of Iranian oil, while Tehran itself has started providing insurance cover for oil tankers entering its waters," the report said.
CGES said the EU embargo on Iranian crude oil imports has caused a shortfall of medium sour crude in the Mediterranean market, leaving refiners to scramble for other supplies. Meanwhile, some refiners in the region claim that the sanctions have depressed refining margins by driving up the price of heavy crude.