By Anthony Di Paola, Serene Cheong and Sharon Cho (Bloomberg) —
Iran is aiming to fill the void left behind by Russia in the European oil market if the Middle Eastern country can secure a deal with world powers over its nuclear program.
The Islamic Republic’s state oil producer will try to win back customers in countries like Greece, Italy, Spain and Turkey in the event sanctions targeting its energy industry and economy are eased, according to people with knowledge of Iran’s strategy. At the end of the year, Europe will ban most of its member states from buying seaborne cargoes of Russian oil, creating uncertainty over supply.
Iran and Russia are both subject to aggressive economic sanctions levied by mainly western countries. European Union nations are set to cut most Russian crude starting Dec. 5 as punishment for that country’s war in Ukraine. The US has spearheaded ever-tightening sanctions over the past four years, trying to slow Iran’s nuclear program.
For Iran, the European focus could help it to cope with intensifying competition in its prized Asian market from an influx of discounted Russian cargoes.
With a nuclear deal tantalizingly close, the Islamic Republic sees an opportunity to replace some of the Russian oil European refiners will no longer be able to buy, according to the people who asked not to be identified discussing energy strategy. Iran’s Heavy crude is a similar-enough quality to Russia’s Urals grade and, along with Iraq’s Basrah Medium, can serve as an alternative.
All of those Mediterranean countries previously bought Iranian crude, with Europe generally importing about 600,000 barrels a day from the country when there weren’t sanctions. Even if sales recover to those levels, that will only go part of the way to replacing Russian oil, with Citigroup Inc. seeing about 1.25 million barrels of daily Russian crude and refined products sales to Europe at risk from sanctions.
Once Iran can get back into the market, it will aim to sell its barrels at full price, the people said. At the moment, Iranian crude is being sold mainly in Asia. Buyers are getting discounts to compensate for difficulties in shipping and insuring the consignments that continue to be complicated by sanctions, according to the people and to traders dealing in Middle Eastern crude.
Iran has been forced to deepen the discounts to compete with the influx of discounted Russian cargoes.
The competition in Asia doesn’t show any sign of letting up. Russia has approached several Asian countries to discuss supplying oil under long-term oil contracts at steep discounts, according to a Western official. At the same time, the US is seeking to build consensus for a plan that would cap the price of the country’s oil in order to deprive the Russian government of funds.
Iran ramped up oil production and exports faster than expected after sanctions were last eased under a 2015 nuclear accord. Now it’s getting ready to attempt that again and hoping to turn its barrels from shunned to sought after.
–With assistance from Grant Smith, Rachel Graham and Bill Lehane.
© 2022 Bloomberg L.P.
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