Russia is a surprise beneficiary of the Iranian oil ban

Russia is a surprise beneficiary of the Iranian oil ban

An early winner of the last round of Iranian sanctions is emerging: Russia.

The United States began enforcing a stringent new series of economic restrictions on Iran on Monday, including a threat to punish buyers of Iranian crude oil. This has sought refineries in Europe and Asia – recent major buyers of Iranian oil – for alternative supplies. Russian oil companies intervened and stolen customers from Iran. The two countries produce similar types of crude oil, which makes reloading refineries relatively easy.

But Moscow also offers Tehran a lifeline for its stranded crude oil. It says it plans to oppose US sanctions and buy Iranian imports. It offers to pay only in the form of barter and then process the crude for domestic use. This would release their own oil for more lucrative crude oil export markets.

"Russia plays on all sides," said Helima Croft, commodities strategist at the Canadian broker RBC.

Russia sees Iran as an important ally in its expanded geopolitical role in Syria after the Civil War. She has criticized the new round of US sanctions and says she will not be bound by them. In recent months, Moscow has repeatedly announced that it would buy at least 100,000 barrels of Iranian oil per day, which would be a welcome buyer for oil that may not find another customer. Russia offers to pay for crude oil with Russian machinery and food, according to the Russian oil ministry. It is also promising to invest in the Iranian oil sector as Western companies withdraw.

Russia considers Iran as an important ally and has criticized the new round of US sanctions. Here, in September 2018, President Vladimir Putin meets Supreme Leader Ayatollah Ali Khamenei.

Russia considers Iran as an important ally and has criticized the new round of US sanctions. Here, in September 2018, President Vladimir Putin meets Supreme Leader Ayatollah Ali Khamenei.

Photo:

KHAMENEI.IR / AGENCE FRANCE PRESS / GETTY IMAGES

The new sanctions imposed by Washington specifically target Iran's oil exports, the country's main economic pillar. US officials want to cork 2.2 million barrels of Iranian crude oil export capacity daily and threaten buyers with sanctions. Many buyers are susceptible to such sanctions by the US banking system and are already withdrawing. Russia is less vulnerable to Washington's retaliation because it is already under US sanctions and its economic and financial system is less tied to the US than Western European countries.

Iran's exports fell by 800,000 barrels daily before the US announced its new sanctions. Oil market observers expect sanctions to fall sharply now.

At the same time, it promises to help Iran, replacing Tehran in the global oil market. Compared to last year, it has increased its production by nearly half a million barrels per day and recently reached a production record of 30 years. Russia, the world's largest oil producer, pumped 11.41 million barrels a day in October, an increase of 4.3% over the same period last year.

Part of this new raw material is being bought by former Iranian customers.

This is particularly the case in Europe, where buyers have abruptly stopped Iranian purchases because they tend to be more exposed to US business and financial systems.

For European refineries, Russian oil is a natural substitute for Iranian crude oil, as it tends to have a medium density and relatively high levels of sulfur can normally be transported to their plants faster than other substitute raw materials. Italian tuners

Eni

SpA and

Saras

For example, SpA uses more Russian oil, especially the popular Ural-grade, to make up for Iranian oil, according to the people who are familiar with the matter. Speakers for Eni and Saras have not issued any requests for comment.

The "Ural" [grade] will benefit, "Patrick Pouyanne, Chief Executive of

total
SA,

told a London Energy Conference last month.

Overall, the purchase of Iranian crude stopped in July, the company said. The following month, the company bought 217,000 barrels of Russian crude a day for its Le Havre refinery in France, a year-high, according to shipping tracker Kpler.

Russia is also replacing Iranian crude oil for customers outside the European Union. Turkey resumed imports of Russian oil in June after a three-month absence and made up for official purchases of Iranian oil. Turkey has also pledged to oppose US sanctions, but many of its companies have deep international ties and would be vulnerable to US sanctions.

This already means higher profits for Moscow's state-owned energy companies. On Tuesday, Rosneft reported a three-fold increase in net income to 451 billion rubles (US $ 6.8 billion) for the first nine months of 2018 compared to the same period of the previous year, mainly due to a shift in production and higher Ural prices.

The same replacement effect was felt in China, which reduced oil imports from Iran by 34% year-on-year in September, while Russian sales rose 7%.

In South Korea, oil sales in Tehran collapsed in August, falling by 85% per year. The Russian shipments rose in the same month after South Korean customs by 20%.

Write to Benoit Faucon at benoit.faucon@wsj.com

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