Iran is using obscure private firms as a front for the sales and to hide the fact that the Islamic Republic is offering Iranian crude oil at a discount despite numerous public statements that it would never do any such thing.
Reuters quoted traders who buy crude for European refineries as saying they are getting daily calls offering Iranian crude, sometimes accompanied by the promise of fake paperwork to disguise it as oil from another country.
The premise appears to be that the refiners are fundamentally corrupt and can be convinced to violate EU law if the added profit they are being offered is large enough.
The head of one crude oil desk said he received around three phone calls a day with offers of steeply discounted crude.
“The issue now is that the oil is trading at a significant discount, so you are looking at bigger profits. The question is: for what price will you risk going to jail,” he said.
The Reuters report lacked a very important detail, however. It failed to say how much of a discount the Iranian traders were offering.
The crude was also being offered in partial cargoes, by-passing the problem of certification altogether, he said. Tankers could sail from Iraq three-quarters full of Iraqi crude, then fill the rest of the space up with Iranian oil, masking the origin as entirely Iraqi.
An EU ban on all imports of Iranian crude went into effect July 1. The Islamic Republic has made chest-thumping announcements that it has cut off sales to European countries that have stopped buying, but it doesn’t appear that many people in Iran have been fooled by that rhetoric.
There was an advance hint of the new tactic. Last month, Tehran publicly scrapped its strict policy of marketing oil only through the state-owned National Iranian Oil Company (NIOC) and said it would allow private companies to market Iranian crude. But the private companies can only get crude from the NIOC and the private firms cannot sell oil at a discount unless they are getting oil at a discount from the NIOC.
The concern of the NIOC appears to be that any desperation sales at a discount today by the NIOC will open up the NIOC to demands for discounted oil once this crisis has passed. The use of front companies allows the NIOC to maintain the fiction of a policy against discounts.
Iranian oil is filling tanks at the Egyptian Mediterranean transit port of Sidi Kerir and is being offered in the European oil market by a growing number of small firms. “They are all crazy offshore companies, mainly Iranian guys behind them,” a senior crude trader at a large state oil firm told Reuters. He said most of the offers were made by telephone.
Not all sellers of the crude are based outside Europe. One offer seen by Reuters was posted on the online marketplace Alibaba by a firm based in Italy.
Salama Import and Export listed itself as a provider of both light and heavy Iranian crude with capacity to supply 1.2 million barrels per month for loading from Sidi Kerir. The fact that someone would post a public offer of illegal-in-Europe Iranian crude suggested a certain level of innocence among the purported traders.
The advertisement for May delivery included a pricing formula in Turkish lira and euros. It was taken down from the website a few hours after a Reuters reporter contacted the general manager, Saef Salama, by phone. “The advertising is old,” Salama said. “If you want Iranian oil, you have to contact the Iranian Oil Ministry.”
The company’s registered address, on the outskirts of Rome, displayed a doorbell with the firm’s name written by hand below it.
The oil stocks building up in Egypt are largely the result of the EU ban on insurance and re-insurance of Iranian crude cargoes. Turkey’s refiner, Tupras, had planned to continue buying Iranian crude after July 1, albeit at a lower volume. But Tupras has bought no Iranian crude since July 1 because it cannot get re-insurance.
Tupras normally picked the oil up on the Mediterranean coast of Egypt. Now those storage tanks are bulging at Sidi Kerir—the terminus of the Sumed pipeline that transports Iranian, Saudi, Iraqi and Egyptian oil from the Red Sea to the Mediterranean. The crude is brought to the southern end of the Suez Canal by Iranian tankers and then piped through Sumed, alongside the Suez Canal, to the Mediterranean.
Traders told Reuters up to seven million barrels of Iranian crude, or seven medium-size shipments worth around $700 million, is stuck in Egypt and being offered cheaply for immediate loading.
One dealer with a trading house said he doubted the private firms would be able to shift much volume because of banking restrictions.
“The banks are so scared of the sanctions that they are policing any transaction even remotely resembling an Iranian deal. And without banks you cannot do much—unless you are crazy enough to bring cash in a suitcase,” he said.