Asian Pacific refiners had halted purchases of Iranian crude oil amid US sanctions, despite the existence of waivers, and did not resume imports until recently when Japan and South Korea received their first cargoes in months.
Prior to that, Japan did not import any Iranian crude oil from November 2018, for the first time since 2012. South Korea received its first post-sanctions cargo earlier, when it resumed Iranian oil imports in early January after a five-month break.
Despite the existence of sanctions waivers, Japanese and South Korean refiners continued to face challenges in resuming Iranian crude imports due to problems getting shipping freight insurance. This reduced Iran’s oil exports from over 2 million barrels per day to around 1 million lately.
Prior to the granted waivers on the Iranian oil imports, Japanese banks suspended handling transactions for oil purchases, but the exemption from US sanctions allows banks to resume handling transactions temporarily during a 180 day period that will end on early May 2019.
As the waiver window closes, Japan and South Korea have just resumed Iran oil imports in order to fill the void caused by an extremely tight oil market for medium and heavy crude grades.
So why did Japan just resume importing Iranian crude?
Japan and South Korea are among eight countries with the US' 180-day waivers allowing them to keep importing Iranian oil through early May 2019.
Japanese refiners still need to obtain government approval prior to scheduling any loading from Iran.
Since the last quarter of 2018, Iran's crude oil fleet started to switch off their satellite tracking systems on an increasing number of very large crude carriers (VLCCs) to avoid disguise shipments to customers that are not exempted.
Despite the US exemptions, Iran did not get all of its crude oil exports back even as Tehran restricted access to export and production figures in a move aimed at keeping the outside world in the dark over what the actual impact of US sanctions.
Japan’s total refining capacity stands at around 3 million barrels per day with an average utilization rate of 85 percent to 95 percent.
A few years ago, Japan was the world's fourth-largest oil importer of around 3.52 million barrels per day. But Japan’s domestic demand is in structural decline due to its ageing population and falling birth rates.
During the last quarter of 2018, Japan shut about a fifth of its refining capacity due to a combination of scheduled and unexpected shutdowns.
The maintenance coincided with Iranian sanctions and the granted waivers could not change the situation until those refineries completed their maintenance work. Now, once again they are in severe need for medium and heavy crude grades.
India is working on an alternative payment method for shipping in Iranian oil, when the first six-month waiver expires. S&P Global Platts reported that Iranian crude exports to India were robust before November 2018.
Around 500,000 to 600,000 bpd of Iranian crude was shipped to India prior to the re-introduction of sanctions in November. But that dropped to 300,000-350,000 bpd during the first round of waivers. Even if India wins a second round of waivers, volumes would be even lower.
Previously Published by Arab News
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.