* Iran average monthly exports higher in Jul-Oct vs H1
* Middle men help disguise origin, call it "Iraqi special
* Fuel oil sales help recoup lost crude revenues
* Unique blend usually being offered off UAE ports
By Humeyra Pamuk and Emma Farge
DUBAI/GENEVA, Dec 20 Iran is becoming
increasingly creative in dodging Western sanctions, managing to
sell a rising volume of fuel oil to generate revenue equal to up
to a third of its crude exports, which have been badly hit by
Compared with the first half of the year, Iran has on
average exported more fuel oil per month since July, when
European Union oil and shipping insurance sanctions came into
effect and more than halved its crude exports.
EU sanctions prohibit the import, purchase and transport of
Iranian petroleum products in an attempt to curb revenues that
might be channelled into a nuclear programme that Iran says is
for peaceful purposes but the West fears is to enable it to make
Even for companies with no link to the EU, sanctions on
financing and shipping insurance discourage would-be customers.
Iran uses fuel oil for electricity generation and to power
ships, but unlike other more valuable refined products such as
diesel or gasoline, it has a surplus to export from the 70,000
tonnes a day it produces.
The July sanctions slashed the OPEC member's fuel oil sales
initially, traders and analysts say, as term customers cancelled
contracts, but sales have since rebounded thanks to the
innovative methods of Gulf-based middlemen and Iran's
market-savvy oil officials.
The Islamic Republic sold an average 648,000 tonnes of fuel
oil monthly from July to October, up from 636,000 tonnes for
January to June, according to data from a company that tracks
Iran's oil shipments.
That brought in an average of $410 million per month. August
income was more than double that figure, helping Iran to recoup
a portion of the $3.8 billion it has lost in monthly crude
export revenues since July.
Salar Moradi, oil analyst at FACTS Global Energy, said Iran
fuel oil exports have risen from lows of around 400,000 tonnes a
month this summer.
"The National Iranian Oil Company has been very successful
in finding new strategies to circumvent sanctions and sold its
fuel oil to Asia in August and September. Now we think Middle
Eastern buyers of Iranian fuel oil have reappeared," he said.
Using ship-to-ship transfers, discharging and loading at
remote ports and blending the Iranian fuel oil with other fuels
to disguise the origin have become popular tactics for the
Gulf-based middlemen and helped keep sales steady, several
trading and industry sources familiar with the region said.
Data from the firm tracking Iran shipments showed sharp
fluctuations in fuel oil flows, which sources said could be
attributed to shipping delays and tanker availability. Exports
dived to zero in July and then jumped to 1.389 million tonnes in
August, with a third of the sales going to the Middle East.
Iran's fuel oil exports stayed above 1.1 million tonnes in
September, and the Middle East received nearly 900,000 tonnes of
this. In October, exports plunged to about 35,000 tonnes.
Reuters data for Iranian fuel oil flows to East Asia showed
a new record of around 1.4 million tonnes in September and 1.1
million tonnes in October.
Requests for comment from officials at the NIOC were not
Iran is no stranger to international sanctions, and one
common tactic to skirt them has been to cooperate with small
Gulf-based oil traders who act as middlemen for buyers who might
be unaware that the cargo is of Iranian origin.
Several Middle Eastern traders said they had been approached
by small UAE-based companies offering a type of fuel oil dubbed
in the market as "Iraqi special blend" that included a
combination of different fuel oil blends from the Middle East,
or with an origin described as Iraqi.
The specification indicates this is a cocktail of products
blended in storage tanks and usually offered from the quiet Gulf
port of Hamriyah and bunkering hub Fujairah mostly via
ship-to-ship transfers (STS), trading sources said.
"This Iranian fuel oil, disguised as Iraqi origin, has been
flooding the market in Fujairah and depressing both cargo and
bunker premiums in September," said a Middle East-based trader.
Some oil traders afraid of falling foul of western sanctions
said a close examination of the so-called "Iraqi special blend"
gives them reason to be suspicious.
A certificate of quality for one such cargo showed the
density of the product to be around 0.9655 kilogrammes a litre -
a level suggesting it was probably Iranian, the traders said.
The Islamic Republic usually exports 280 cst viscosity
straight-run fuel oil from its Bandar Mahshahr port, with a
density of around 0.965.
AIS Live shiptracking data on Reuters showed that tankers
were regularly shuttling towards Iran's main fuel oil export
terminals of Bandar Abbas and Bandar Imam Khomeini, then turning
off their satellite signals before reappearing soon afterwards
next to the UAE storage hub Fujairah.
In another tactic, small barges have left the port of Bandar
Imam Khomeini, near Iran's largest refinery Abadan, and then
transferred their cargo onto bigger tankers destined for
Fujairah, two industry sources said.
Separately, Chinese e-commerce website Alibaba showed an
Iranian seller offering volumes of at least 100,000 barrels of
Iraqi fuel oil for sale.
Reuters previously reported that Iran had exported its own
fuel oil to Malaysia on a National Iranian Tanker Company
vessel, before transferring it at sea to a Vitol-chartered
Refinery upgrades planned for late 2012 or early 2013 at the
Arak and Bandar Abbas plants should curb the amount of fuel oil
Iran has for export, but refinery runs have been on the rise
this year. Reducing them is seen as an unattractive option,
since this would also cap production of gasoline badly needed
for domestic use, shortages of which can stir up social unrest.
Oil traders say disguising Iranian exports as Iraqi is the
perfect cover story, since in reality a small volume of Iraqi
fuel oil is smuggled over the border and out of Iranian ports.
"Some fuel oil does come out of Iraq overland smuggled in
trucks. I imagine that some of the Iranian volumes may be
piggy-backing on this trend," said a senior source at a
Swiss-based trading house familiar with the region.
Another sign that the special blend cargoes are likely to be
Iranian is the suspiciously cheap price.
"They're being offered at ridiculously low prices, with a
huge discount to the market. Like $10-15 discounts," said the
Middle East-based trader.
Traders said that from Fujairah, the "Iraqi special blend"
cargoes are then transferred onto larger vessels such as Suez
Max tankers and VLCCs and then sent to Asia.
A partner at a law firm who asked not to be named said the
confusion over the origin of fuel oil was causing havoc in the
Singapore bunker market - the ultimate destination for most
Iranian fuel oil volumes.
"It's becoming a big issue in Singapore as there's a lot of
bunker fuel there which may have Iranian fuel in it. People are
very aware of the issue and they are trying to get warranties
for the product," he said.
"The Singapore bunker market is a black hole," said another
Swiss-based trader."You never know where it has really come from
once it gets there."