of discounted oil in a desperate bid to keep selling its crude.
Reuters reported Tuesday that Iran had offered cut-rate oil to China’s Sinopec, which bought 90 percent of the Iranian crude sold to China last year, making Sinopec by far the largest single buyer of Iranian crude in the world.
Earlier this year, there were reports of oil shoppers asking Iran for discounts and being brushed aside.
If the story from China is true, it indicates a major change in policy for Tehran. It also suggests a sense of desperation is taking hold in the Islamic Republic.
But it isn’t certain the discount story is true. It was reported Tuesday by Reuters. The source was a single Chinese official in Beijing who said Iran offered Sinopec a discount but that China had rebuffed the offer.
Reuters quoted the official as saying: “The Iranians have made some offers, but we have turned them down. The economic benefits of filling some discounted Iranian oil into the national oil reserves would be too small a consideration for the state. The key concern for the Chinese government would be China-US relations.”
Some analysts thought that explanation smelled. They said that if China’s chief concern was its relationship with the United States, then it would announce it had ordered major reductions in oil purchases from Iran. “This sounds to me like China is just trying to give the impression that relations with Washington are central while doing nothing on the Iran issue,” one said.
Analysts pointed out that the Reuters story never said how much of a discount Iran offered, prompting speculation that no discount had really been offered.
Iran had made no comment as of press deadline. However, the National Iranian Oil Co. (NIOC) said just last month that it would never offer any discounts to market crude.
Some believe Iranian oil sales will plummet unless Iran offers discounts and offers them soon. “Any company continuing to buy Iranian oil faces problems,” said one analyst. “Because of all the banking restrictions, it has to expend a lot of effort and work down a lot of back alleys to arrange payments. It takes more time, costs more money and poses some risks to professional reputation to keep buying Iranian oil. It just isn’t worth all that trouble unless Iran offers a discount.”
There has been much speculation that some buyers may take Iranian oil and blend it with other oil to disguise its origins. An oil marketer could offer a tankerload of UAE oil that was actually 75 percent Dubai oil and 25 percent Iranian crude.
That wouldn’t be worth the risk without a discount. But a discount of just 5 percent might make such a transaction worthwhile to some.
And what is the risk to Iran? Some Iranian oil can be pumped out of the ground at just $2 a barrel, though the average cost is believed to be approaching $10 a barrel now. But given that the oil can now be sold for almost $100 a barrel, a discount of even 75 percent makes economic sense if the alternative is not selling that barrel at all.