Glencore halts fuel sales to Iran; eyes sanctions

Mon Jan 11, 2010 5:04am EST

* Glencore stops gasoline supply to Iran to avoid fallout

* Risks outweigh reward of doing business with Iran

* Glencore has supplied not more than 17,000 bpd/month

By Luke Pachymuthu and Yaw Yan Chong

DUBAI/SINGAPORE, Jan 11 (Reuters) - Glencore has ceased gasoline supply to Iran to avoid fallout from U.S. sanctions on companies supplying fuel to the Islamic republic, ending three decades of business that began with its founding firm, trade sources said.

The firm, which only did a small portion of its trade with Iran, has stopped shipments since November as it gears up for a potential public listing, traders familiar with the country's monthly gasoline imports told Reuters.

Swiss-based commodities trader Glencore [GLEN.UL] declined to comment on the matter.

"There is growing concern about the legislation the U.S. is pursuing with regards to Iran," said a trade source, speaking on condition of anonymity because he was not authorised to make public statements.

"This could make it very tricky for Glencore and other companies doing business with Iran."

The U.S. House of Representatives passed legislation in December authorising President Barack Obama to levy sanctions on companies that directly provide gasoline to Iran, along with firms that provide insurance and tankers to facilitate fuel shipments. [ID:nN15243629]

"At the end of the day for Glencore, this is a small return business, again risk outweighs the reward," an Asia-based trader said.

The bulk of Glencore's business with OPEC-member Iran in recent years has been to supply the world's fifth-largest crude oil exporter with gasoline.

The European trader has been supplying no more than 17,000 barrels per day (bpd) of gasoline per month to Iran, a small portion of the Islamic republic's typical monthly import programme of between 10 and 12 cargoes, or some 102,000 bpd.

Past suppliers such as international oil major BP (BP.L) had also halted their gasoline exports to Iran due to pressure from the U.S. and British governments.

But the supply gap could be easily filled by traders such as independent firms Trafigura and Vitol, Malaysia's national oil company Petronas and Chinese companies. [ID:nPEK505199] [ID:nL4429410] [ID:nLG73258]

For Glencore, the halting of sales to Iran would have little impact on its global trading book, as the volumes are small for the world's largest independent commodities trader and second-largest independent oil trader.

Some industry sources said an additional factor in the decision to stop supplying Iran may have been Glencore's plans for a public listing.

"It is simply a case where the risk outweighs the reward. It isn't worth it considering how much the company will benefit from an IPO (public listing)," said a source familiar with Glencore's trading operations.

GLENCORE COMES FULL CIRCLE

Led by Chief Executive Ivan Glasenberg and Chairman Willy Strothotte, who also heads Xstrata XTA.L, Glencore is one of the world's top producers and traders of commodities and raw materials. On a consolidated basis, its turnover for fiscal 2008 was $152.2 billion, with total assets of $61.3 billion.

Billionaire commodities trader Marc Rich, founder of the commodities trading giant that became Glencore, was pardoned by U.S. President Bill Clinton in 2001 after 17 years as a fugitive to avoid prosecution on counts including alleged illegal oil trading with Iran.

The latest move comes 30 years after Rich, who sold his Glencore stake to management, started the business of spot oil trade by dealing in Iranian crude in defiance of sanctions on Tehran after the 1979 revolution.

U.S. politicians have targeted Tehran's gasoline imports as a means for stricter economic sanctions in the row over Iran's nuclear programme, which the West says is used to develop weapons. Tehran says it needs nuclear generation of electricity.

The Senate is likely to approve a similar bill, but it is uncertain how soon it will vote. The legislation would expand an existing U.S. law that seeks to punish foreign companies that invest more than $20 million a year in Iran's energy sector.

"To have any meaningful impact, any sanctions imposed by the U.S. must target Iran's energy sector," said Mark Dubowitz Executive Director Foundation for Defense of Democracies.

"This is the lifeblood of the ruling triumvirate of Supreme Leader Ali Khamenei, President Mahmoud Ahmadinejad and the Revolutionary Guards." (Additional reporting by Nidhi Verma in NEW DELHI; Editing by Ramthan Hussain)