Iran deal shipping insurance element may help oil sales

  • World
  • Monday, 25 Nov 2013

DUBAI (Reuters) - Iran's nuclear deal with the West is not intended to let more of its oil into the market, the White House said, but an easing of the ban on European shipping insurance may help smooth crude exports to its big Asian customers.

Iran and six world powers reached a breakthrough deal early on Sunday to curb Tehran's nuclear programme in exchange for limited sanctions relief.

U.S. and European Union sanctions that prevent energy companies from investing in Iran, and have slashed Tehran's oil exports from 2.5 million barrels per day (bpd) to around 1 million bpd, remain in place.

"In the next six months, Iran's crude oil sales cannot increase," a fact sheet posted by the White House on the U.S. State Department's website on Sunday said.

"Under this first step, the EU crude oil ban will remain in effect and Iran will be held to approximately 1 million bpd in sales, resulting in continuing lost sales worth an additional $4 billion per month, every month, going forward."

In addition to having to reduce their purchases to win waivers from U.S. sanctions, Iran's big oil customers in Asia have been put off importing even permitted volumes because of difficulties getting insurance for shipments.

India's imports from Iran also dived in the first nine months of this year as refiners cut purchases because European reinsurers added a clause that could mean claims arising during the processing of Iranian oil would not be met.

The U.S. government fact sheet says that financial sector sanctions, including many types of insurance, remain intact.

But a senior western official said on Sunday that some relief on EU sanctions on oil shipping insurance was included in the deal.

According to a full text of the deal published by Iran's Fars News Agency, the West has agreed to pause plans to squeeze Iran's crude sales further and instead allow its customers to buy their current average amounts of crude.

For these oil sales, the powers have undertaken to voluntarily suspend EU and U.S. sanctions on associated insurance and transportation services, according to the Fars document, which Reuters could not immediately confirm the authenticity of with EU officials.

It is unclear why the U.S. fact sheet does not mention plans to relax insurance controls, or how any such relief would be policed to prevent a sharp rebound in Iranian oil exports.

But removing insurance headaches for at least some shipments should help smooth a trade that has dipped below sanctioned levels this year.

"The relief in EU sanctions on oil shipping insurance is a big deal and creates the conditions to make it easier for Iran to get at least up to the sanctioned levels," Olivier Jakob from the Petromatrix consultancy said.

Western pressure on Iran's customers to find other suppliers has supported global oil prices over the last two years. Rising U.S. and Saudi production has helped dampen the impact of so much Iranian oil being sidelined.

U.S. lawmakers had been planning to make deeper cuts to Tehran's crude exports, but Washington has put any further nuclear-related sanctions on hold, so long as Iran sticks to its side of the deal.

Less crude from Iran would increase pressure on regional rival Saudi Arabia to squeeze more out of oilfields that have already been pumping at record levels this year.

Benchmark Brent crude hit a six-week high of $111.40 on Friday on early uncertainty over whether an agreement over Iran's nuclear programme would be reached.

Oil markets were closed on Sunday but the breakthrough is likely to weigh on prices when the market opens on Monday.

"The various groups aligned against any deal give the market good cause for scepticism, but this deal is clearly a significant and bearish development," said Seth Kleinman, head of energy research at Citigroup.


The White House estimates that Iran has lost more than $80 billion since the beginning of 2012 because of lost oil sales. It also estimates Tehran's earnings over the next six months will be $30 billion down compared with a six-month period of 2011, before sanctions were imposed.

U.S. sanctions effectively bar Iran from repatriating earnings from oil exports, forcing customers to pay into a bank in their country.

Washington estimates that Iran has around $100 billion in foreign exchange earnings trapped in such accounts.

Under the terms of the deal, Iran will be allowed access to $4.2 billion of oil export revenues. But nearly $15 billion will still flow into accounts overseas over the next six months, according to the U.S. government.

"We expect the balance of Iran's money in restricted accounts overseas will actually increase, not decrease, under the terms of this deal," the White House fact sheet said.

The U.S. government has also suspended some restrictions on gold and precious metals trade and lifted sanctions on Iran's petrochemical exports that were imposed earlier this year.

Iran is home to some of the world's largest oil and gas reserves but U.S. energy firms have been barred by Washington from Iran for nearly two decades.

Several European oil and gas companies had planned multi-billion dollar investments over the last decade to help develop Iranian reserves.

However, U.S. pressure drove European energy companies away from Iran in the late 2000s, for fear of jeopardising their interests in the U.S. market if they stayed.

Western companies, whose technology Tehran needs to fully exploit its oil and gas riches, are keen to go back into Iran when sanctions are lifted.

Despite the landmark deal struck on Sunday, U.S. restrictions on trade, including those banning long-term investment or provision of technical services to Iran's energy sector, are still in place.

Sanctions preventing the sale of refined petroleum products to Iran, which needs to import such fuels because it lacks refining capacity, also remain in effect.

Graphic on Iran's oil exports to Asia:

U.S. fact sheet on deal with Iran:

(Additional reporting by Simon Falush in London and Justyna Pawlak in Geneva, editing by William Hardy)

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