* Preliminary data suggest exports down by 1 mln bpd
* Production cuts ahead for Tehran
* Represents major upside risk for oil prices
By Dmitry Zhdannikov
LONDON, June 13 (Reuters) - Iran’s oil exports have fallen by an estimated 40 percent since the start of the year as Western sanctions tear into the country’s vital oil industry, the International Energy Agency said on Wednesday.
The agency, which represents the interests of major consuming nations, said preliminary indications suggested exports - the lifeblood of Iran’s economy - fell to 1.5 million barrels per day in April-May from 2.5 million at end 2011.
“In months ahead, Iran may need to shut in production volumes if export markets remain similarly constrained and storage fills up,” the IEA said in its monthly report.
It said it believed Iran was still producing 3.3 million bpd, down from 3.5 million last year and stockpiling unsold oil.
Tehran has denied it is experiencing problems with oil sales despite mounting evidence its major customers, including China, are turning down offers of cheap crude under pressure from Washington to cut trade ties.
On Monday the U.S. government, which aims to choke off Tehran’s oil revenue and force a halt to nuclear development it believes is aimed at making weapons, said India, South Korea, Japan and Turkey have made significant cuts to oil imports from Iran.
Iran says its nuclear programme is for civilian purposes.
The European Union will impose a full embargo on Iran’s oil from July 1. The measure will also effectively cut off tanker insurance, a major problem for Asian buyers who traditionally account for the bulk of Iran’s oil sales.
The IEA report came out days ahead of nuclear talks in Moscow between Iran and world powers - the United States, Britain, France, Germany, Russia and China.
The Organisation of the Petroleum Exporting Countries, of which Iran is a member, will meet in Vienna this week to discuss production running at a multi-year highs. U.S. ally Saudi Arabia has been stepping up supply to replace lost Iranian barrels.
Earlier this year, oil prices rallied to $128 a barrel, their highest since 2008, on fears of a loss of Iranian production. But they have since fallen below $100 per barrel on signs of slowing economic growth in China, weak U.S. data and an escalation in Europe’s debt crisis.
The IEA said the world was better supplied with oil now than in recent years but warned against calling it an over-supplied market. “Nobody knows exactly how oil supplies will develop this summer. Memories are indeed short: crude prices remain very high in historical terms, and are acting as a drag on household and government budgets in OECD and emerging markets alike.”
The IEA said other bullish factors for oil prices included power sector oil demand this summer and stockpiling by major non-OECD economies including China, which have been accumulating crude in the past months ahead of the Iranian embargo.
The agency left its global oil demand growth forecast broadly unchanged at 820,000 bpd.
Its view contrasted with reports by OPEC and the U.S. government which said on Tuesday that global oil markets could loosen further in the second half of the year. [ID: nL1E8HC62U]
The IEA said its demand estimate for OPEC’s oil also remained broadly unchanged although it was 1 million bpd higher for the second half of 2012 at 30.9 million bpd. The figure was still 1 million bpd higher than OPEC’s current production levels. (Reporting by Dmitry Zhdannikov; editing by Janet McBride)