Japan’s crude imports from Iran fell 36.4 percent in March from a year earlier, with the world’s third-largest oil consumer staring at a complete halt in imports from the OPEC member due to tightening Western sanctions.
European sanctions are making it impossible for buyers to find insurance cover for ships carrying Iranian oil from July. That's made JX Nippon Oil & Energy Corp, Japan's top refiner, say it would not be able to continue importing oil from the Islamic Republic.
Japan is reducing Iranian imports even though overall oil demand is rising for power generation. South Korea, India and China, the other three main buyers of Iran’s 2.2 million barrels per day of exports, have made deep cuts in the first quarter as sanctions make it impossible to pay, ship and insure the crude.
“Given the bottlenecks in shipping, we can't rule out the possibility of there being no crude imports from Iran. Saudi Arabia, UAE and other countries will be able replace most shipments but it'll be difficult to meet all of the shortfall,” said Tatsufumi Okoshi, senior economist at Nomura Securities.
“Conditions will probably be tough for fuel oil users as demand for reconstruction (after last year's tsunami) picks up and as we approach the summer.”
Japan’s imports from Iran fell to 270,700 barrels per day in March, while overall crude oil imports rose 11.3 percent to 4.2 million bpd, data from the Japanese Ministry of Economy, Trade and Industry (METI) showed on Friday. For the fiscal year ended in March the decline from Iran was 22.4 percent.
Kuwait and top exporter Saudi Arabia are the main beneficiaries of the fall in Iranian shipments, along with new suppliers such as Gabon, as Japan buys more oil for firing generators following last year's nuclear disaster.
Japan’s crude imports from Kuwait rose 45.4 percent over the year and 27.5 percent from February, the METI data showed. Imports of Saudi oil rose 14.4 percent from a year earlier and 29.5 percent from the previous month.
Iran’s share of Japan's total imports fell to 6.4 percent to become the fifth-biggest supplier, from 7.9 percent in February and 11.2 percent in March last year.
The north Asian nation imported 305,114 bpd of crude from the Islamic Republic in the first quarter, down 31.2 percent from 2011, when it purchased 443,535 bpd, the data showed.
The United States and Europe are trying to squeeze the revenues Iran makes from its oil exports to force it to halt a nuclear program they fear will be used to make weapons but which Tehran says is for power generation.
Exemption, deeper cuts
Japan has deepened cuts in Iranian imports even after securing a waiver from the United States from financial sanctions, reflecting the difficulties buyers are facing in trading with Iran.
The U.S. exemption means Japan and 10 other EU nations have been given a six-month reprieve from the threat of being cut off from the U.S. financial system.
In addition, tough new European Union sanctions aimed at stopping Iran’s oil exports to Europe also ban EU insurers and reinsurers from covering tankers carrying Iranian crude anywhere in the world from July. Around 90 percent of the world’s tanker insurance is based in the West, so the measures threaten shipments to Iran’s top Asian buyers.
That is making Japan cut loadings from Tehran by almost 80 percent in April, while Hyundai Oilbank will halt lifting from June, effectively reducing South Korea's purchases by 35 percent to 130,000 bpd.
South Korea’s largest refiner SK Energy, also the country’s top buyer of Iranian crude, is securing alternative supplies to make up for a potential cut in Iranian imports.
China’s crude imports in the first quarter of this year from Iran were a third lower at 346,183 bpd compared to a year earlier, while South Korea cut by 22 percent to 195,000 bpd.
Japan’s customs-cleared data released on Thursday showed imports from Tehran fell just 6.3 percent in March from a year earlier, and slumped 22.6 percent for the quarter.
The METI numbers are more closely watched because they take into account shipments to refineries and oil terminals and often these numbers don’t immediately show up in the customs data.