(Refile corrects spelling of countries in third paragraph)
* Emirates National Oil Company refinery uses Iranian condensate
* Refinery supplies Dubai airport via pipeline
* Oil not considered Iranian under sanctions once refined abroad
By Daniel Fineren
DUBAI, April 23 (Reuters) - Fuel made from Iranian oil is legally powering thousands of flights a year out of Dubai’s booming airport, despite U.S. pressure on buyers to shun Tehran’s petroleum exports.
It may even fuel U.S. allied military jets in the Middle East.
Washington and the European Union have slashed Iran’s exports in half over the last year by leaning on importing countries to find alternative feedstock for their refineries.
Meanwhile, close U.S. ally Dubai, long a major user of Iranian light oil known as condensate, continues to process tens of thousands of barrels a day at an Emirates National Oil Company (ENOC) refinery, according to oil industry sources and shipping data.
ENOC then pumps the resulting fuel to Dubai airport, the world’s second busiest.
ENOC’s chief executive declined to comment this week on how much Iranian oil the company was still importing and ENOC media relations did not respond to repeated requests for comment.
U.S. and European companies are not allowed to buy any Iranian refined oil products, under tough sanctions imposed by Washington to force Tehran to stop its nuclear activities.
But any airline is free to use fuel made from Iranian oil in other countries, because once it passes through a refinery outside Iran it is no longer considered of Iranian origin under sanctions.
“In our view jet fuel from an Emirati refinery is Emirati jet fuel, it is not Iranian no matter what it was made from,” a U.S. government official in Washington said.
ENOC says it is the largest provider of jet fuel at Dubai International Airport (DXB) and that its portfolio boasts a growing number of military customers.
One such customer is the U.S. Defense Logistics Agency (DLA) which supplies planes at the Al Minhad airbase near Dubai, a hub for U.S.-allied forces in the Middle East.
“DLA Energy does contract with ENOC International Sales, LLC to supply jet fuel to Al Minhad Air Base,” a spokesman for the U.S. Department of Defense said. “The contract was let in August 2011. This contract expires in August 2013.”
It is not clear whether or not some of the fuel ENOC supplies under contract to the DLA come from ENOC’s Jebel Ali refinery near Dubai. A western government source said ENOC also buys some fuel produced in refineries in Bahrain and Kuwait.
ENOC did not comment on whether some or all the fuel it supplies to the DLA is produced at Jebel Ali.
But ENOC’s website says most of the jet fuel it supplies to the airport is pumped through a 60,000 barrel per day (bpd) pipeline from the refinery, and demand at the world’s fastest growing airport is rising so much that it is laying a second pipeline.
Iran exported about $7.5 billion worth of condensate from its main export facility at South Pars in the year ended March 20, 2013, according to Iranian media reports.
ENOC was the biggest buyer of Iranian condensate in 2012, when its imports rose to an average of 127,000 bpd, according to analysts’ estimates.
An executive order issued on July 31, 2012, gives U.S. President Barack Obama the option to impose sanctions on buyers of Iranian condensate, but only if the U.S. believes there is sufficient alternative supply to permit a significant reduction in volumes from Iran.
ENOC announced in February it had secured about 20,000 bpd of condensate from Qatar to feed its 120,000 bpd refinery and said it was working to find more alternatives.
The company has not announced further substitution deals, suggesting it has not yet found long-term alternative supplies.
Ship tracking data on Reuters shows a vessel able to carry around a million barrels of oil shuttles between the refinery and South Pars once a week. A full tanker would carry enough to run the refinery at capacity for about a week.
With shrinking export options, traders say Iran is likely to be selling its condensate fairly cheaply, helping ENOC offset multi-million dollar loses it has to take because it is obliged under UAE law to sell gasoline at a subsidised rate.
Dubai has been a key trading partner for Iran for decades, but the UAE is also one of Washington’s closest allies.
The UAE is the largest export market for the United States in the Middle East, with Dubai flagship airline Emirates alone having placed a $24 billion order with Boeing in 2011, according to the website of the UAE Embassy in Washington.
U.S. Defense Secretary Chuck Hagel is touring the Gulf this week, with the U.S. close to finalizing a deal to sell the UAE 25 F-16 Desert Falcon jets worth nearly $5 billion.
Unless ENOC can find another 100,000 barrels per day of alternative supplies at competitive prices, the opening of a second pipeline due later this year could take more fuel made from Iranian oil into the tanks of international airlines.
The existing pipeline can carry around 9.5 million litres of jet fuel a day - enough to fill up 44 Boeing 747s a day or 16,000 a year, although most routes do not use a full tank.
ENOC is not the only jet fuel supplier, because its refinery and existing pipeline are not big enough to meet demand at DXB, where an average of around 470 flights a day took off in 2012.
Several western oil companies also supply jet fuel to the airport - Royal Dutch Shell, BP and Chevron - but they say they source it outside the UAE and in full compliance with sanctions on Iran.
Some U.S. and European airlines said they do not use ENOC when they call at Dubai, with some having global purchase deals with other suppliers.
But for many of the 130 airlines flying into Dubai, the fuel derived from Iranian oil that ENOC offers is indispensable. (Additional reporting by Timothy Gardner in Washington; Editing by Anthony Barker)