IEA: Sanctions Hit Iran Oil Output, Sales

Sanctions on Iran designed to curb the Islamic Republic’s nuclear program are already squeezing global oil flows, the International Energy Agency says.

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Though a European ban on Iranian oil imports does not go into effect until July, the sanctions “are already having an impact on crude trade flows in Europe, Asia, and the Middle East,” the IEA said.

The agency cited industry estimates that up to 1 million barrels per day of Iran’s 2.6 million bpd of oil exports could be replaced by alternative supplies once European sanctions go into effect.

The sanctions were designed to pressure Iran into giving up its nuclear program, the goal of which Washington and its allies believe is to produce an atomic weapon.

Although the European Union imported only 600,000 bpd of Iran’s oil last year, “broader U.S. and EU economic sanctions on Iran’s Central Bank could be more pervasive if they successfully block the predominant channel for oil payments to Iran.”

Iran may be forced to store unsold barrels or even shut down production in the second half of this year, the IEA said on Friday in its monthly Oil Market Report.

“European customers have already curtailed imports of Iranian crude and Asian buyers are lining up alternative sources of supply,” the IEA said, adding that European customers will likely look to Russia, Iraq, and Saudi Arabia for replacement barrels.

Meanwhile, China has cut back on Iranian imports, although lower 2012 volumes are more likely the result of a dispute over prices in term contracts, as China has refused to participated in U.S. and EU sanctions.

“China has stepped up purchases of Saudi crude, reportedly buying an additional 200,000 bpd in recent months, though some of these extra volumes may be destined for newly completed (Chinese) strategic storage,” the IEA said.

China also stepped up purchases of Russian ESPO crude and Angolan grades, while India is purchasing more from Saudi Arabia and has arranged a deal with Iran allowing India to pay for 45 percent of its crude purchases in rupees.

China was also buying more Russian ESPO crude and Angolan grades. India has also increased purchases from Saudi Arabia and reached an agreement with Iran to pay for 45 percent of its crude purchases in rupees.

Other Asian buyers, including Japan and Korea, are stepping up oil imports from West Africa, especially Angolan and Nigerian grades, the report said.

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