Iran begins ramping up crude oil shipments to Mediterranean refiners

By Benoît Faucon 

The first shipment of Iranian crude oil to the European Union in over three years sailed Monday, with two more poised to follow in the coming days, Iranian officials said. 

A tanker chartered by French energy giant Total sailed with 2 million bbl on Monday, the officials said. Another carrying 1 million bbl for Spain's Cia. Española de Petróleos, or Cepsa, is poised to follow Tuesday, they said. A third vessel, also of 1 million bbl and booked by Litasco, the trading arm of Russia's Lukoil, has arrived and will follow soon after, the officials said. 

The ships are part of a flood of new oil that Iran says it is producing since world powers agreed to lift Western sanctions related to the country's nuclear program. Those sanctions crippled Iran's oil industry, reducing its export capacity by more than 1 million bpd. 

Rokneddin Javadi, the deputy oil minister, told state television broadcaster Press TV on Sunday that Iran's crude-oil production had increased by 400,000 bpd. the bulk of its stated short-term, post-sanctions target of ramping up production by 500,000 bpd. 

Total declined to comment. Litasco and Cepsa didn't respond to requests for comment. 

Iran is aiming its new exports at two of its prime customers before sanctions: Asia and Europe. While some Asian buyers continued doing business with Iran at reduced rates during sanctions, Europe had imposed a total embargo. 

Now Iran has lowered its prices to refineries along the Mediterranean Sea in an effort to compete with rivals like Saudi Arabia and Russia, which had moved to grab Iran's market share when it was driven out of Europe. 

The tankers began loading after European oil traders and shippers won a key victory allowing the cargoes to be insured. The American Steamship Owners Mutual Protection and Indemnity Association, or American Club, said US sanctions preventing it from covering cargoes originating from Iran had been removed. 

The new Iranian oil has weighed on crude prices, which were already struggling. Prices have fallen more than 70% since their June 2014 peak of $114/bbl, largely because new supplies from the US, Saudi Arabia, Russia and Iraq have outrun growth in demand for crude. 

Iran is a member of the Organization of the Petroleum Exporting Countries, which produced an additional 280,000 bpd last month, said the International Energy Agency, which tracks oil and gas data for industrialized countries. As a result, inventories will build by 2 million bpd in the first three months of 2016, it added.