Some Indo-Pacific buyers slash oil imports from Iran before sanctions kick in

Some Indo-Pacific buyers slash oil imports from Iran before sanctions kick in

Tom Abke

Major Indo-Pacific buyers of Iranian oil have been scaling back their crude imports ahead of imminent U.S. sanctions on the Islamic Republic.

Led by Japan and South Korea, the reduction indicates an early willingness by some of Washington’s allies to comply with U.S. sanctions prior to their implementation, observers say. It also brings a shift in petroleum trade patterns that has consequences for Iran and its Indo-Pacific customers.

Iranian crude imports from the largest buyers in the region — China, India, Japan and South Korea — dropped by 18.8 percent, or 2 million fewer barrels per day (bpd), in February 2018 compared with February 2017, Reuters reported. The drop was driven by Japan and South Korea, which slashed imports of Iranian oil by 21.8 percent and 32.1 percent, respectively. In March 2018, imports dropped even more when Japan didn’t import a single barrel from Iran.

“South Korea and Japan are two of the closest allies to the U.S. in East Asia,” Philip Vahn, who covers Asian oil markets for S&P Global Platts in Singapore, told FORUM, “and would be keen to abide by the Trump administration’s foreign policies, as they require U.S. support and influence in their quest to completely denuclearize North Korea and improve diplomatic and economic ties with Pyongyang this year.”

South Korea began buying less crude from Iran in the fourth quarter of 2017 and is looking to Australia, Equatorial Guinea, Libya, Norway and Qatar to make up the difference, Vahn said.

China, however, shows no signs of early compliance, with its imports of Iranian crude skyrocketing in March 2018 to more than 700,000 bpd, up from less than 500 bpd a month earlier, Reuters data shows. Beijing demonstrated the lowest compliance among major Indo-Pacific importers during the previous round of sanctions against Iran, which ended in January 2016. India’s imports of Iranian crude were down from more than 600 bpd to less than 500 bpd in the same two-month period, but this follows a seasonal pattern. The proposed sanctions are designed to deter Iran from developing nuclear weapons.

“The basic rule, of course, is that anything that is Iranian or is associated with Iran is under sanction,” said Dr. Ted Karasik, adjunct senior fellow at the Lexington Institute in Arlington, Virginia. “This is why companies have to be so careful.” (Pictured: An Iranian oil tanker, left, and a South Korean tanker dock at an oil facility at Khark Island in the Persian Gulf.)

The White House is conducting a global audit of Irans trade and shipping relationships, Karasik said, adding that some countries may ask for compliance exemptions. “These exemptions are going to be on a case-by-case basis,” Karasik said. “Thus, a country like South Korea will have to prove why it will require Iranian oil, but if Korea has already found substitutes, then that issue of the exemption falls away.”

Tom Abke is a FORUM contributor reporting from Singapore.