FOREIGN REPORTS INC TH Street NW, Suite 1050 Washington, D.C

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1 FOREIGN REPORTS INC TH Street NW, Suite 1050 Washington, D.C Tel: Fax: BULLETIN AUGUST 22, 2013 Iran s oil sales in July look to remain at lower than average post-sanctions levels, while other economic indicators suggest some improvement in confidence after the election of Hassan Rouhani. If Congress enacts a new sanctions law in September or October, confidence in Iran could be undermined, but Rouhani s case for tackling sanctions urgently could be boosted. (Some have argued that the worse Iran s economy gets, the more urgent some will push for a nuclear breakout.) Official Data Official data from China, India, and South Korea for July imports of Iranian oil suggest that the low volume of sales which marked June is likely to be repeated in July. According to the data for June, Iran s main customers imported just under 900,000 b/d of Iranian crude and condensate, about 200,000 b/d less than average since sanctions were first put in place in July METI data for Japan should round out the picture for July next week. Turkey hasn t published official data since last November, but tanker unloadings indicate that imports from Iran have held steady for months.

2 Page 2 Condensates and Fuel Oil The official data doesn t include condensate imports by ENOC s splitter in Dubai, which traditionally have amounted to 120,000 b/d. Iran says it exported about 210,000 b/d of condensate during the first three months of this year. Chinese and Japanese import data include condensates. China also has reported about 25,000 b/d of fuel oil imports from Iran during the first seven months of this year, but none in July. Possible Changes from India and Korea The July data so far reported shows a sharp drop in India s imports and a sharp rise in South Korea s imports. These are expected to level out during August. The Koreans want to cut back so they can meet U.S. expectations for granting another waiver. India is trying to work out the reinsurance hurdles which restricted its July imports to a mere 35,500 b/d. Inflation and the Rial Two other indicators of how Iran s economy is faring are inflation and foreign exchange rates. Point-to-point inflation, as opposed to annual average inflation, didn t get worse in the most recent month and the value of the rial against the dollar has improved slightly. These two indicators may reflect improved confidence after Rouhani s election.

3 Page 3 Indian Imports Indian data show that imports from Iran fell to a new low in July of 35,500 b/d. The only Indian buyer of Iranian oil in June and July was privately-owned Essar Oil. Its imports were impacted by yet another insurance issue. State-owned Mangalore Refining and Petrochemicals Ltd. (MRPL) and Hindustan Petroleum Corp. Ltd (HPCL) both want to resume buying from Iran. MRPL imported one 85,000 tonne cargo last week and looks to import at least three similar sized cargoes between now and the end of September, which would imply an average of at least 40,000 b/d. That s only half of what MRPL had originally planned for Iran imports for the

4 Page 4 current fiscal year. HPCL is less satisfied than MRPL with the insurance schemes offered by the Indian government and hasn t yet committed to buying an Iranian cargo. Detained Tanker In a separate incident last week, Iran detained an Indian tanker carrying a cargo of 140,000 tonnes of Basra Light for HPCL on pollution charges. The vessel reportedly discharged oily ballast off Iran on its way to pick up the Iraqi cargo, with the Iranians claiming that the oil-water separator on the vessel wasn t working. The Indian government has interceded with the Iranian authorities, but without result so far. The Indian Foreign Ministry is said to be upset with the way the tanker was forcibly taken to Bandar Abbas. Falling Rupee Value Nevertheless, the Indian Government is anxious to import as much oil from Iran as it can while not running afoul of U.S. sanctions. India pays for Iranian oil in rupees, an especially important attraction at a time when the rupee has fallen in value against the dollar by 19% since the beginning of May. The rupee payment mechanism for Iranian oil has also benefitted Indian exporters. Iran has become India s largest buyer of basmati rice. Strong demand from Iran has helped boost export prices of basmati to $1,660 per tonne, up from $900 last growing season. As Indian oil imports from Iran have declined, its refiners have stepped up purchases from other Gulf suppliers and from Latin America, particularly from Venezuela. Iraqi Prime Minister Nouri al-maliki arrived in New Delhi today, the first such high-level visit since Maliki says that he will be discussing an energy cooperation agreement

5 Page 5 which could increase Iraq s oil sales to India and invite more Indian investment in Iraq s petroleum industry. Iraq has been gaining oil market share in India at Iran s expense. Chinese Imports China s July imports from Iran remained at subdued levels in July. There has been reporting this week from Beijing that the Chinese government wants to target a 5% reduction in its imports from Iran in order to win another waiver from the U.S. It is not clear whether there is an official understanding between the U.S. and Chinese governments on a targeted percentage reduction that would be less than most in Congress want. The reports from Reuters Chen Aizhu suggested that China would reach its target if it reduced purchases from Iran over the next few months by about 4,000 b/d.

6 Page 6 China has increased its purchases from many different suppliers to make up for lower volumes from Iran and overall higher total import volumes. China s imports from its top four OPEC suppliers, including Iran, nevertheless make up about 50% of its total imports. Iraq has not succeeded in gaining market share in China at Iran s expense as well as it has in India. Chinese firms are the largest investors in Iraq s upstream oil sector.

7 Page 7 Iranian Warnings Iran s new oil minister Bijan Namdar-Zanganeh warned other producers this week that they would eventually have to make space for Iran when it is able to reenter markets it has lost. Revival of Iran s lost oil markets is among my top priorities, Zanganeh told Fars News this week. We only ask those who have replaced us in the world s oil markets to know that when we are reentering these markets they will have to accept that oil prices decline or they should reduce their production to create enough space for Iran s oil. In some markets like India, this would put Iran in a confrontation with Iraq. Increased Saudi sales to China are part of a multi-year agreement concluded well before Iran came under oil sanctions. South Korean Imports South Korea s imports from Iran rose in July but there is a widespread expectation in Seoul that the country will cut back in the months ahead to meet U.S. expectations for a sanctions waiver. The rise cannot stay, and the Iranian crude import will go down so as to meet a 15% cut, Reuters quoted a knowledgeable source in Seoul today. One of the Korean refiners which buys Iranian oil, SK Energy, may buy two cargoes per month. The other, Hyundai Oilbank, buys one cargo every other month.

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