March 31, 2015 / 7:07 AM / 5 years ago

More Iran oil post-sanctions, aimed at Asia, may hurt Iraq

DUBAI/NEW DELHI/HONG KONG (Reuters) - A possible surge in Iranian oil exports from an end to sanctions will reboot a struggle between top Middle East producers for Asian buyers, with Iraq looking the most vulnerable.

A worker fills a tank with subsidized fuel at a fuel station in Jakarta April 18, 2013. REUTERS/Beawiharta

The latest twist to the saga of aggressive marketing is the world oil glut and low prices, likely to fall more with added Iranian crude, making Tehran’s battle for market share tougher.

“You cannot produce without demand. There is a limit in any market and also long-term contracts between Gulf oil producers and Asian refiners,” said a Gulf oil source.

“That’s why it is hard to imagine big volumes just eating into the market share just like that. Even if the Iranians offered discounts and sold on the spot market, there is a limit.”

Under sanctions Iran became adept at offering discounts, easy credit and free shipping to keep in the game, recalling Iraq’s tactics to re-enter the market after the fall of Saddam Hussein. Baghdad’s position remains arguably more tenuous than the established might of top oil exporter Saudi Arabia.

State oil giant Saudi Aramco has also been slashing its prices for its crude to Asia. Fellow OPEC members Iraq and Kuwait have followed suit.

“Everyone is after market share,” said an Iraqi oil source.

“Iraq is the one who is disadvantaged as it is trying to place new volumes and take new market share. If Iran would start to return it is almost inevitable that there would be some form of price war between them,” said Samuel Ciszuk, senior adviser on security of supply to the Swedish Energy Agency.

“You want to have the bulk of reliance by suppliers that are seen as much more stable,” he added. “The Gulf states have a natural edge in that, they would not have to sell their crudes at a discount like the Iraqis or the Iranians.”

International negotiators are still working out details of the deal on Iran’s nuclear program, but it would almost certainly lift sanctions only in stages, deferring even a partial return of Iranian crude exports until at least 2016.

Sanctions have halved Iran’s oil exports to just 1 million barrels per day from 2.5 million bpd in 2012.

Sources familiar with Iranian oil policy say other OPEC members have benefited by taking more market share when Tehran’s crude exports fell and expect them to make room for Iran, when sanctions against it end.

CHINA AND INDIA

Big Asian refiners, some with plants used to dealing with Iranian oil grades, see themselves buying more from Tehran if sanctions hurdles are removed. They remain customers but the scale of their purchases has been limited by logistical, insurance and diplomatic factors linked to sanctions.

China is the main buyer of both Iraqi and Iranian crude.

“If they reach a consensus on the nuclear issue... and the U.S., the West relax controls on Iran’s oil sales, I believe China’s crude imports from Iran will increase,” Wang Dongjin, vice chairman and president of PetroChina, said on Thursday.

“If that happens, it will provide more bargaining power to China in terms of importing oil from the entire Middle East,” he said.

However, with Chinese demand growth slowing and its storage tanks near full, the room for a sharp increase in Iranian supplies is limited.

The Petrochina boss said he expected crude imports from Iran this year to stay “roughly the same” as in 2014. Iranian oil exports to China has been near pre-sanction levels at around 550,000 barrels per day since last year.

Earlier this month, Iran’s oil minister said Tehran was ready to increase oil exports by up to 1 million bpd when sanctions are lifted.

But market experts and Gulf OPEC sources estimate an increase in production ranging from 200,000 - 600,000 bpd within six months after a conditional and gradual lifting of economic sanctions, and do not see a full return of Iranian crude until the second half of 2016.

Iran already has more than 20 million barrels in floating storage ready to be sold and has leased crude storage facilities in Asia.

Iran's national flags are seen on a square in Tehran February 10, 2012, a day before the anniversary of the Islamic Revolution. REUTERS/Morteza Nikoubazl

India’s state refiner Hindustan Petroleum Corp has said it can replace some Iraqi oil it buys through France’s Total, with Iranian crude if terms offered are better.

“I will definitely consider Iranian oil based on economics. If current terms and conditions are retained then we may buy,” said B. K. Namdeo, head of refining at HPCL.

Vijay Joshi, head of refinery operations at India’s Mangalore Refinery and Petrochemicals Ltd (MRPL) said: “We would like to lift more and more heavy crude from Iran as that suits my refinery configuration.”

Additional reporting by Chen Aizhu in Beijing, Florence Tan in Singapore; Editing by William Hardy

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