Nuclear discussions
Two rounds of talks are slated on the issue of Iran's nuclear program this month. The first will begin on May 14 and will last for two days. Participants from Iran and the International Atomic Energy Agency (IAEA) will discuss the opening of the nuclear site at the Parchin military complex to inspection, as well as IAEA demands to inspect other military installations. The second, will take place about 10 days later in Baghdad. There, the Group of Five plus one (the five permanent members of the Security Council plus Germany) will discuss with Iran a new framework for Iranian uranium enrichment.
It appears that the diplomatic window of opportunity is still open, with Iranian Foreign Minister Ali Akbar Salehi declaring "If we have taken one step forward at the meeting in Istanbul, I am certain we will take several more steps forward at the conference in Baghdad."
The "steps forward" to which Salehi referred may be related to Iran's willingness to content itself with enrichment of uranium to the level of 5 percent, in exchange for receiving nuclear fuel for research purposes. There is agreement at the moment that this enrichment scheme is the minimum that will be demanded by the U.S. and the European Union. But this minimum demand could also turn out to be a maximum demand, as Iran has made it clear it will not agree to send the uranium it has already enriched anywhere beyond its borders.
After both sides have adopted a strategy of "mutual listening" without preconditions, which proved itself at the Istanbul conference, Iran is expected to present demands of its own in Baghdad.
The main condition will be a Western commitment to begin lifting the sanctions on Iran in return for its agreement to the enrichment scheme and to inspection of the sites the IAEA wants to enter. This reciprocity is not to be taken for granted. It requires a timetable and agreements on the type and conditions of the inspection, though there is still no agreement as to the extent of the enrichment Iran will be permitted or about which sanctions will be lifted.
This is where Russia is expected to come in and play a key role. Iran has already announced that the Russian plan for phases could serve as a good basis for discussion. This is a reference to a plan that was discussed last week by Iran and Russia, whereby in return for every agreement on Iran's part, a portion of the sanctions would be eliminated. The Baghdad conference might be an indication as to the direction Iran will now take.
UK action and insurance
A European Union ban on importing Iranian oil, which takes effect on July 1, will also prevent EU insurers and reinsurers from covering tankers carrying its crude anywhere in the world. The impact of the measure is likely to be felt strongly in London, the centre for marine insurance. Britain is seeking to persuade fellow European Union members to postpone by up to six months the ban on providing insurance for tankers carrying Iranian oil. It may be that this represents an olive branch to Iran in advance of the forthcoming critical meetings. In other words, the UK would like the EU to say to Iran "If the meetings go well, we may relent on sanctions".
Iran exports most of its 2.2 million barrels of oil per day to Asia. The four main buyers - China, India, Japan and South Korea - have yet to find a way to replace the predominantly Western insurance shipping cover provided by London insurers.
Some Indian and Chinese firms have already asked state insurers to step in and provide coverage by offering government guarantees. The situation is more complicated for Japan and South Korea, which have already cut imports of Iranian oil under pressure from Washington, but need Western protection and indemnity (P&I) ship insurance to continue importing the remaining volumes.
It has been said that the UK fears oil prices could rise sharply as a result of disruptions caused by the lack of insurance after July 1, as Japan and South Korea would be forced to bid aggressively for alternative supplies to meet their needs.
It is not yet clear when the measure could be debated by EU officials as a meeting to review the embargo on Iranian oil has been rescheduled from the middle of May to an unspecified date.
New French President
Francois Hollande's victory in the French Presidential election is widely expected to result in a softening of Paris' policies towards Iran, with a markedly different approach to the robust attitude of Sarkozy. It is possible that Hollande will challenge the current united approach displayed by the EU.
Iran's crude oil stocks rising
Iran is said to be deploying more than half its fleet of supertankers to store oil at anchorage in the Gulf as buyers of its crude cut back because of sanctions. It is said that 14 of National Iranian Tanker Company's (NITC) fleet of 25 very large crude carriers, each loaded with about 2 million barrels of oil, are now at anchor acting as floating storage, with a further five of Iran's nine Suezmax tankers, with capacity of one million barrels, also parked offshore with oil aboard. This suggests Iran's difficulties in selling its oil are getting more acute. With more than half the NITC fleet at anchorage, Iran's capacity to export oil is severely curtailed.
The Iranian shipping sources said that storage tanks on land at Kharg Island, with capacity of some 23 million barrels, are now full.
Industry estimates for the amount of Iranian oil in floating storage from oil companies and tanker tracking consultancies are much lower, in the range 8-16 million barrels, or 4-8 VLCCs. However, those estimates are based on satellite data using ship tracking systems like the AIS (Automatic Identification System) that use onboard transponders. It has been reported that most of the NITC tanker fleet had switched off their transponders to conceal shipping movements. Location data for many of the fleet has not been updated for at least three weeks.
Ships are obliged by international law for safety to have a satellite tracking device on board when travelling at sea. However, a ship's master has the discretion to turn off the device with the permission of the vessel's flag state.
Europe's July 1 oil embargo and U.S. and European financial sanctions prompted by Iran's nuclear programme have seen Tehran's oil sales drop to most Western destinations and drawn promises from some Asian buyers that they will cut purchases.
China had been expected to take increased volumes of Iranian crude but that has not happened yet. China halved its Iranian crude imports in March compared to a year earlier and South Korea cut purchases by 40 percent.
Japan has also made steep cuts and Turkey has said it will reduce its purchases.
With half of its own fleet being used as floating storage, Iran would need to hire tankers on the open market or have importers hire their own ships to maintain exports.
Iran last week conceded that exports had fallen slightly to 2.1 million bpd of crude, from 2.2 million at the end of last year. Independent estimates are that exports fell to about 1.9 million bpd in March and have fallen further in April. If it cannot find new buyers for its crude Iran's only option other than floating storage would be to curtail oilfield production.
Further US sanctions 1st May 2012
President Obama signed an Executive Order on 1st May 2012 providing the U.S. Treasury Department with a new authority to tighten further the U.S. sanctions on Iran and Syria.
This targets foreign individuals and entities that have breached, attempted to breach, conspired to breach, or caused a breach of U.S. sanctions against Iran or Syria, or that have facilitated deceptive transactions for persons subject to U.S. sanctions concerning Syria or Iran. With this new authority, Treasury now has the capability to publicly identify foreign individuals and entities that have engaged in these evasive an d deceptive activities, and generally bar access to the U.S. financial and commercial systems.
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