By Adam Currie — Exclusive to Oil Investing News
Going undercoverThe Middle Eastern nation has not done itself any favors within the investment community by making it known that it is now concealing the destination of its oil sales by disabling tracking systems aboard its tanker fleet, making it difficult to assess how much crude Tehran is exporting. Sources have told the media that most of Iran's fleet of tankers is now “off-radar” after Tehran ordered NITC captains to switch off black box transponders that are used in the shipping industry to monitor vessel movements. The EU's oil embargo, coupled with the US and European financial sanctions against Iran's nuclear program, have seen the Middle Eastern nation's oil sales drop and has led to threats that Asian buyers could cut purchases. At the same time, some analysts have suggested that “cheap, covert” sales may have curbed, or even reversed, the reduction in crude shipments. A recent survey of the Iranian fleet confirmed that only seven of its 25 VLCCs are still operating on-board transponders. Markets should be wary that as sanctions begin to take a toll on Iran, it will become even more difficult to track just how much product is moving out of the country's main terminal at Kharg Island. Iran's Oil Minister, Rostam Qasemi, stated that Tehran's crude exports are “steady” at last year's rate of 2.2 million barrels per day. Who is taking delivery? Meanwhile the market will be watching the region closely as rumors are rife as to who exactly Iran is selling its product to while “undercover.” Logistically the country does not have the capacity to ship all of its exports, and in the past it has been left to trading partners to charter vessels for pick ups. Some assume that Iran is most likely selling to China, its long-term strategic and commercial ally. However, until now there has been no evidence that this is the case.
In an interview with a Middle Eastern media source, an unnamed Iranian oil trader commented that he believes India is the most likely recipient of Iranian product, adding that the Asian giant has been buying oil on Iranian ships on extended credit for several months.“China and India are our lifters of last resort,” he said. “And the sanctions are making the situation very good for them.” Even if Iran was to continue deliveries of crude in this manner, some question the logistics of such an operation. If the country is using its own vessels to deliver oil, then it will be paying freight charges estimated at nearly $5 million per trip, as well as having to cover insurance, which has become increasingly difficult to finance on international markets. This issue was highlighted last week when Japanese insurers warned ship owners that they are now willing to cover only one tanker at a time carrying Iranian crude oil through the Middle East gulf. Sources stated that insurers will only be able to cover three or four tankers of Iranian crude oil a month as each ship takes about a week to ten days to travel in and out of the gulf. That number is down sharply from last year, when at least ten tankers called at Iranian ports per month. Will fleet influence market? While news of the expansion of Iran's tanker fleet has not yet had any profound effect on the price of oil, one would imagine that it still harbors the ability to do so. One only has to look back to March to note how the investor community was dealt a harsh lesson on the volatility of prices as Iranian market rumors resulted in an unanticipated surge in prices. Price skyrocketed amid reports of Iranian sanctions, Middle East tensions, and unfounded rumors suggesting that a Saudi pipeline explosion had halted a portion of Saudi oil exports. No one can accurately forecast the endgame in Iran's standoff with the west, but it is clear that the market is fragile, and will not be strengthened by the mysterious trading environment in which Iran's fleet now seems to be operating.