Abu Dhabi: Iran may soon be forced to start selling its crude at a discount to attract buyers when the European Union's ban on Iranian crude imports takes effect on July 1, threatening to destabilise the country's oil-dependent economy, say energy experts.
"Iran's oil exports won't be shut down by EU sanctions. There are buyers for Iranian crude such as China, India and Turkey. The question is will the Chinese demand a discount from Iran to continue buying its crude," Robin Mills, Head of Consulting at Manaar Energy in Dubai, told Gulf News.
"The idea behind the EU sanctions is less oil export revenue for Iran," he added.
Samuel Ciszuk, Consultant at London-based KBC Process Technology Ltd, in an emailed reply to Gulf News questions, said that as Iran starts losing its European crude markets, it will try to market those volumes in Asia, which is the only other region theoretically capable of taking more of its crude.
"Given that many Asian buyers are unable and/or unwilling to take more Iranian crude for political reasons, the group to which Iran would have to try to sell in additional volumes is quite small, giving the potential buyers the upper hand in price negotiations. Iran will be the more desperate party, to put it more drastically, given its reliance on oil export revenue for its funding. Hence there is reason to expect Iran to have to offer discounts," Ciszuk added.
Attractive levels
He said there are some indications that Iran already has offered higher discounts, with comments from Indian buyers last week seemingly confirming that they received term contract prices at an attractive level.
"China has also put significant pressure on Iran to lower prices in the past two months," Ciszuk said, adding that it would be interesting to see if Iran will be able to place all dislocated volumes with new buyers relatively quickly, or whether it will have to build some floating storage in the meantime.
"If it would start building a floating storage operation, its negotiating position would likely be even further weakened," he added.
In what's seen as the latest attempt by the West to halt Iran's controversial nuclear programme, last week the EU decided to stop importing Iranian oil but the bloc postponed its ban to give members time to find alternative suppliers.
Iranian officials have since threatened to retaliate by disrupting shipping lanes in the strategic Strait of Hormuz.
It's widely feared that global crude prices could rise as high as $150 a barrel if the West's tensions with Tehran escalate, dashing any hopes of a quick recovery in the global economy already reeling under the impact of the European sovereign debt crisis.
Europe is Iran's No. 2 customer after China, taking 450,000 barrels of Iranian crude a day, according to the US Energy Department.
Iran is the second-largest producer in the Organisation of Petroleum Exporting Countries (Opec) after Saudi Arabia, pumping 3.575 million barrels a day of crude oil in December.
