A number of financial publications, including the Financial Times, in the past few days have examined the challenges confronting Iran in exporting its crude oil because of the recent sanctions imposed by the UN, the US, EU, Japan and South Korea. Although the US has not as of yet sanctioned Iranian oil, but a variety of financial sanctions put in place in the past two month are creating major problems for the customers to buy oil from Iran. The most serious challenges are as follow:
- L/C: European and Middle Eastern banks are not opening new letters of credit or L/C for Iranian financial institutions. The issuance of L/C is critical for large international transactions. This situation makes the payments for oil very difficult, and its effects are expected to be seriously felt in the next few months when the customers of Iranian crude need to open new L/C.
- The Asian Banks: The oil traders dealing with Iran have recently switched to Asian banks to handle their transactions with Iran. But the recent set of sanctions announced by Japan and South Korea would soon end participation of the Asian banks in Iranian transactions.
- Tankers: The oil tanker carriers have started refusing tankers to Iranian destinations.
- Insurance: Insurance companies have also become reluctant to underwrite new oil transactions/shipments involving Iran.
Note: In this post we had reported Iran's oil export at 3.7 mb/d. That was of course a mistake. The export level is around 2 mb/d. The oil production is around 3.7 mb/d. Many thanks to one of our readers for pointing out the mistake and for sending us relevant data on Iran's oil industry.
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