A gas flare on an oil production platform in the Soroush oilfields is seen alongside an Iranian flag in Iran. Image Credit: Reuters

Two months before renewed US sanctions on its oil exports take effect, Iran has already suffered a sharp drop in sales and lost key buyers in Asia and Europe.

That slump will continue in coming weeks. Meanwhile, rising output from other Organisation of Petroleum Exporting Countries (Opec) members is fuelling tensions within the producer group that could come to a head at a meeting in Algeria later this month.

Iran exported just over 2 million barrels a day of crude oil and condensate (a light form of crude extracted from gasfields) in August, according to Bloomberg tanker tracking. That is the lowest since March 2016, and down 28 per cent from April, the last month before US President Donald Trump announced that he was withdrawing from the Iran nuclear deal and reimposing sanctions.

Several key buyers of Iranian oil have already halted purchases. There have been no shipments to South Korea or France since June, while overall exports to the European Union have fallen by about 40 per cent since April.

The loss of the South Korean market creates a particular problem for Iran, as it was the destination for almost 60 per cent of the country’s condensate exports. These flows were exempted from sanctions under President Barack Obama, but have been included this time around.

Iran has built a new refinery to process its condensate, but exports are still needed to support the growth in gas production from the South Pars field that straddles the border between Iran and Qatar. If it can’t dispose of the condensate, Iran may be forced to reduce gas extraction and risk triggering winter fuel shortages.

Iran’s other Asian markets have proved more resilient, so far. China appears to be making good on its pledge to neither raise nor cut its purchases of Iranian crude, while India and Japan are still seeking waivers from US sanctions in return for a reduction, rather than a full curtailment, of their purchases. Those discussions are continuing, but, in the meantime, buyers are holding off on booking cargoes for October loading, suggesting a further drop in Iran’s exports is likely.

While the loss of Iranian exports is causing some concern over a potential tightening of the oil market towards the end of the year, rising production from other Opec members has more than offset the loss so far.

Total Opec oil production has risen by 840,000 barrels a day since April. Taking out the contribution of the Republic of Congo, which joined the group at its June meeting, the net increase is still more than half a million barrels a day.

While the decision taken at the meetings in Vienna in June to boost output by bringing production closer to the level agreed at the end of 2016 is helping to ease supply worries, it is also causing friction within Opec.

Saudi oil minister Khalid Al-Falih said after the meetings that the deal allowed those producers with spare capacity to make up volumes that others were unable to produce in order to bring the group’s total output into line with the agreed level. Iran disputes this interpretation, arguing each country should keep production in line with its individual target.

Iran has formally challenged the right of the Joint Ministerial Monitoring Committee to redistribute output between participants. That panel will meet later this month in Algeria, and the gathering could be a stormy one. Iran is unlikely to prevail, however. Russia has no appetite to maintain output restraint and Saudi Arabia, under pressure from Trump and its own revenue needs, is already boosting supply.