Asian oil importers were well placed to weather the storm of a possible US re-imposition of sanctions on Tehran,and any subsequent blockage to the country's crude exports, due to their supply diversification efforts that had led to a drop in their Iranian purchases.
Various sources with East Asian refiners said they were waiting for clarity on Washington's intention to bring back the sanctions.
Major oil consumers in Asia had, however, already factored this in and the companies were well-positioned to seek alternatives in the event that they faced difficulties accessing Iranian crude, industry sources and analysts said.
"Iranian crude oil imports have already been declining so it would not create a headache [for us] even without it," a northeast Asian refiner source said.
"We [still] hope to have clarity [on the sanctions] because it could be troublesome for shipping arrangements."
South Korea's crude and condensate imports from Iran dropped 37.4% year on year to 374,097b/d in March, marking the fifth consecutive year on year decline since November 2017, Korea National Oil Corp's latest data showed.
Japan's 2017 imports from Iran fell 24.2% to 172,216 b/d, from 227,142 b/d in 2016, S&P Global Platts calculations based on the Ministry of Economy, Trade and Industry data showed. In the first two months of 2018, imports had fallen 12.3% year on year to 192,289 b/d.
DIVERSIFIED SUPPLY SOURCES
In recent years, Asian importers had diversified their requirements for grades previously met by Iranian crude and condensate due in part to declining exports of South Pars condensate, and increasing exports from the US.
Asia's demand for US crude oil had been steadily climbing since early 2017, aided by a weaker WTI, versus Brent and Dubai pricing benchmarks, as well as some US Gulf Coast terminals' ability to handle super tankers.
"South Korean importers are knocking doors of US supplies in an attempt to replace Iranian Heavy and condensate with US supplies," South Korean Ajou University's adjunct professor in the energy systems department Yonghun Jung said. He was formerly a counselor on energy for South Korea's minister of trade, industry and energy.
"In the short- and medium-term, if the waiver expires, the Korean importers will rely more on the US supplies, without any other alternatives," Jung said.
South Korean end-users had been preparing for the sharp decline in the available supply of Iranian ultra-light crude oil since late third quarter of last year, with the country's major gasoline and petrochemical makers purchasing condensate from as far as Equatorial Guinea and Norway.
In January, Japan imported 118,607 barrels of Mozambique's Temane condensate for the first time ever, a move that signaled northeast Asian end-users had stepped up efforts to secure ultra-light crude feedstocks amid dwindling Iranian supply.
Elsewhere, over the past one year, Indian refiners had been ramping up their crude intake from Iraq and the Persian Gulf producer could play a pivotal role if the South Asian companies faced some difficulty accessing Iranian crude supplies.
"If the sanctions make buying Iranian crude troublesome again, India may need to further raise imports from Iraq," a source at Bharat Petroleum Corp Ltd said.
US SANCTION SCENARIOS
Up to 1 million b/d of Iranian oil exports were at stake in US President Donald Trump's May 12 deadline to decide whether to continue waiving oil-import related sanctions as part of the Joint Comprehensive Plan of Action that took effect January 2016.
When sanctions were last in place on Iran from 2012, the US had issued waivers to six countries -- China, India, Japan, South Korea, Taiwan and Turkey -- allowing them to continue importing Iranian oil at a reduced level for every 180 days.
"May 12 will likely see the withdrawal of the US from the Iran nuclear accord, resulting in a reduction of oil exports from Iran by 200,000 b/d to 500,000 b/d by the end of the year, and another 500,000 b/d to 700,000 b/d in 2019," FGE consultants' chairman Fereidun Fesharaki said at a recent conference in Abu Dhabi.
"Should Trump let the waivers expire in May, it is not 'the day' when oil purchases should be cut, but is the start of a period of evaluation for the Iranian oil purchase reductions," Fesharaki's March report said.
"If Trump considers the 180-day period of reductions as sufficient for companies to wind down their purchases and decides not to delay the implementation, then it is possible that the first evaluation period will be in November 2018," he said, adding that the US would check Iranian oil importers' volumes over May 2018-November 2018 against November 2017-May 2018 for a 'significant reduction.'
Japanese refiners intended to verify the US government's approach to monitoring import volumes in the event that it re-imposes sanctions against Iran, Petroleum Association of Japan's president Yasushi Kimura on April 19.
"We will need to verify a possible approach of the US government, including how it will check Japan's Iranian crude oil imports and requests [for imports]," Kimura said at a press conference in Tokyo.
A Japanese refiner source also said that the company expected to see room for negotiating a term contract with state-owned National Iranian Oil Company, which could give the lifter some flexibility in case it failed to meet its contractual obligations in the event of sanctions. - Platts -