Wave of oil from Iran may flood into Asia if nuclear deal agreed

Iran has millions of barrels of oil stored offshore that could flow into a tight global market if a nuclear deal is agreed, with refiners in South Korea likely to be among the first in line to take cargoes.

The Persian Gulf producer may have 65 to 80 million barrels on stationary tankers, according to data intelligence firm Kpler. About four-fifths is condensate, a super-light oil that’s a by-product of natural gas extraction. The overall Iranian volume is higher if crude that’s already in transit is included.

Oil markets are tracking the possible return of official Iranian flows just as benchmark Brent topped $100 a barrel with the outbreak of conflict in Ukraine. An Iranian deal may just be close: there has been significant progress and the sides are close to a possible agreement if some detailed issues are resolved, according to U.S. State Department spokesperson Ned Price. A breakthrough would pave the way for US sanctions on Tehran’s oil to be lifted.

While insurance and finance matters may take time to sort after any nuclear deal is agreed, the Iranian oil held in tankers indicates these barrels can be shipped immediately once sold, according to Anoop Singh, head of East of Suez tanker research at Braemar ACM Shibroking Pte in Singapore.

“We think a lot of that will flow to South Korea,” Singh said. “And that may in future also hit South Korean imports of naphtha and light US crude.”

When US sanctions hit, South Korea, Asia’s fourth-largest oil user, turned to alternatives from Qatar, the US, Australia and Russia, as well as naphtha after the end of the American waivers that permit processors like SK Innovation Co. and Hyundai Oilbank Co. to buy Iranian oil until 2019, according to traders.

At its peak in 2017, South Korea’s monthly imports of Iranian oil averaged about 12.3 million barrels before US sanctions kicked in, according to Korea National Oil Corp. data. Iran’s current floating volume is at least five times of that monthly figure. Other than South Korea, the United Arab Emirates, China and Japan were among the top takers of South Pars condensate.

Although China has taken significant volumes of Iranian crude despite the sanctions, the world’s biggest oil consumer doesn’t have many so-called splitter units that use condensate as feedstock. With the absence of South Korean buyers, just six condensate cargoes were exported to Venezuela in 2020-2021, said Homayoun Falakshahi, senior commodity analyst at Kpler.

Estimates for the volume of oil held off Iran vary wildly as some tankers have “gone dark,” the act of switching off their transponders to avoid detection. Such activities make it tough for observers to track loadings and offloadings, as well as the vessel’s last port of call. 

Kpler, which defines floating storage as ships stationary for at least seven days, sees Iran’s oil holdings in vessels to be over 100 million barrels when counting oil-in-transit. Industry consultant Energy Aspects estimates 70-80 million barrels are in onshore and floating storage, while Citigroup Inc. sees 40 million barrels on land and 45 million on tankers.

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