Saudi, Venezuela gain from Iran’s shrinking oil sales to Asia

SINGAPORE (Reuters): The sanctions reducing Iran’s oil exports have played in the favour of major producers such as Saudi Arabia, Russia and Venezuela which now export about 21 percent more crude to Asia’s biggest buyers compared to a year ago.

Iran’s exports to China, Japan, South Korea and India have fallen by a third in the first six months of the year as EU and U.S. sanctions made it difficult to pay for the crude and find insurance cover for tankers. The United States is also finalizing even tougher sanctions to restrict Iran’s oil revenues.

As Iran’s oil sales declined, the world’s top oil exporter Saudi Arabia, Russia and other OPEC producers Venezuela and Angola ramped up their sales to Asia’s top oil consumers, where refiners can pick and choose from a variety of supplies in a market flush with crude.

Asia is the region where oil demand is growing, as the U.S. economy teeters on recession and Europe tries to stem its financial crisis.

“We have seen that refiners have successfully replaced Iranian crude with other crudes,” said Sushant Gupta, an analyst at Wood Mackenzie. “There is no pressure from the supply side.”

Western powers are trying to force Iran to abandon a nuclear programme they believe is designed for building weapons. Tehran says it needs the technology to generate electricity.

Japan, South Korea and India all cut imports from Iran to gain a waiver from the U.S. sanctions which threaten to cut off institutions dealing with Iran from the U.S. financial system.

China was also awarded a waiver after cutting its imports from Iran due to a dispute over contract terms earlier this year. The EU ban on insuring any Iranian oil shipments also hindered China’s imports from Iran.

In the first half of the year, Saudi Arabia boosted sales to the top four Asian buyers by 15 percent year-on-year to 3.8 million barrels per day (bpd).

During the same period, Venezuela’s year-on-year exports also jumped 42 percent to 596,000 bpd, followed by a 36 percent year-on-year increase in shipments from Russia to 682,000 bpd.

Volumes from Angola have risen 24 percent year-on-year in the first six months to 994,000 bpd and 26 percent from Kuwait to 938,000 bpd.

China, Asia’s top oil consumer and the world’s second largest, appeared to favour Russian crude in its purchases during the first six months of the year.

China cut Iranian imports by 20.5 percent during that period to 429,873 bpd, and Chinese data showed it replaced that amount, as well as an additional 11 percent, by imports from Saudi Arabia, Angola and Russia.

Russian impo-rts recorded the biggest increase of 44 percent over the same period a year earlier, followed by Angola’s 35 percent and Saudi Arabia’s 16 percent.

Japan’s purchases from Iran for the first six months fell 33.4 percent from a year earlier to 227,573 bpd, with Saudi Arabia, Russia, Oman and Kuwait filling in the gap. The 17 percent fall in purchases by South Korea from Iran was filled up by Saudi Arabia, Kuwait and Qatar.

Only India, Asia’s third-largest oil consumer, has posted an increase in Iranian imports. Shipments in the first six months have risen 3.9 percent as India stepped up purchases ahead of the EU sanctions, which took effect on July 1.

Some industry analysts believe Iran’s exports to Asia may not fall further as all four buyers find ways around the sanctions while keeping import volumes low to keep on qualifying for the U.S. waiver.

Japan has agreed to provide sovereign guarantees to vessels owned by its shipping companies to transport Iranian oil, while China and India are asking Iran to ship the crude on its own tankers and taking on the risk.

 South Korea has said that it may resume imports from Iran soon.

“The third quarter will probably be the worst for Iran. We expect production to fall further, but production may improve from the fourth quarter as buyers revive purchases,” said Gupta at Wood Mackenzie.