Iran ready to slash oil prices to counter Russia's growing sales to China

Teheran faces fierce competition from Russia, which has in recent months emerged as the top crude oil supplier to China. PHOTO: REUTERS

SINGAPORE - Iran is ready to cut prices of its sanctioned crude stored on ships anchored in international waters just off Singapore, in a bid to defend its market share in China, industry sources tell The Straits Times.

Teheran faces fierce competition from Russia, which has in recent months emerged as the top crude oil supplier to China, according to data by Refinitiv, a unit of the London Stock Exchange Group.

The Straits Times understands that Iran is offering the crude in tankers anchored in Malaysia and Indonesian waters at discounts of around US$5 to US$7 to Russian cargoes.

"The amount of Iranian oil sitting on water in Asia is a good indication of how optimistic Teheran might have been over the revival of the nuclear deal," said Ms Vandana Hari, founder of Vanda Insights, a provider of global oil markets macro-analysis.

"Trying to get rid of it by offering steep discounts is the clearest signal that it has given up the hope of being relieved of US sanctions, at least for the time being."

Recent negotiations with members of the European Union to revive a 2015 nuclear deal first made with global powers fell through earlier this month, with officials saying the agreement - known as Joint Comprehensive Plan of Action (JCPOA) - is on hold.

The aim of the JCPOA is to keep Iran from expanding its nuclear programme, which many in the west suspect is for the sole purpose of developing nuclear weapons.

Before Russia invaded Ukraine in late February, around half of Russia's crude and petroleum product exports went to Europe, according to the International Energy Agency.

Now Russia - whose oil is shunned by the EU - is the third largest supplier of crude oil to Asia after Saudi Arabia and the United Arab Emirates, after it began to divert shipments elsewhere at discounted rates.

Russia has become the largest supplier to China, having sold close to 1.74 million barrels per day in August, representing 20 per cent of that nation's market.

According to Ms Emma Li, senior analyst at data intelligence firm Vortexa, Iranian oil in ships anchored off Malaysia and Indonesia appears to be moving to China at a much slower rate because of the Russian manoeuvres.

Demand from China has also taken a hit from its zero Covid-19 strategy which has resulted in local lockdowns.

Ms Li also noted that demand for sanctioned Venezuelan crude appears to be flowing into China at a much quicker pace and more frequently.

China has not purchased Venezuelan crude directly from the producer since 2019 after Washington tightened sanctions on the South American exporter over various crises there. But oil continued to find its way to China via traders who rebranded the fuel as Malaysian.

But last month it was reported that China had tasked a state company to ship millions of barrels of Venezuelan oil, as part of a deal to offset Caracas' billions of dollars of debt to Beijing.

Mr Homayoun Falakshahi, a senior analyst at commodity data intelligence firm Kpler, said Iran has more than 90 million barrels of crude stored on ships that have been deployed east of the Suez, with around 37 million barrels in anchorages off Malaysia and Indonesia.

He added that Iran had been pumping massive amounts into tankers over the past several months in anticipation that it would get relief from economic sanctions.

"I agree that the lack of an agreement on Iran's nuclear programme will obviously make it more difficult for Iran to offload these volumes, and this will get even more difficult from December as the European Union's latest sanctions package (against Russia) gets implemented," said Mr Falakshahi.

"We expect more Russian oil to make way to the east of Suez then, increasing competition for Iranian crude. In that case, the NIOC (National Iranian Oil Company) will be forced to give even more discounts."

But Dr Asif Shuja, a senior research fellow specialising in Iranian affairs at the Middle East Institute, National University of Singapore, said Iran may have another card to play with the onset of winter in Europe.

He explained: "When the poor Europeans are prone to death in fast approaching cold, and the oil and gas is stopped from coming from the traditional sources, the millions of barrels of Iranian oil floating idly would have a lot of appeal."

He added: "The Europeans will likely pressure the US to resurrect the JCPOA and lift the US sanctions, particularly as the Europeans have no personal enmity with Iran."

But Mr Mark Dubowitz, chief executive of the Foundation for Defence of Democracies (FDD), a leading think-tank based in Washington that has been involved in an advisory capacity with various White House administrations on Iran sanctions, said that to get full sanctions relief might not come that easily for the Islamic republic.

He said: “While Iran is managing to squeeze out enough illicit barrels to keep its economy from collapse, in order to sell its oil legitimately, it needs a nuclear deal with sustainable sanctions relief.

“That may be difficult given the strong bipartisan opposition to the shorter and weaker nuclear deal currently under discussion.”

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