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Iran crude exports drop in June, sales stay above Western limits July 20 deadline looming for deal between Tehran and powers

LONDON, July 1, (RTRS): Iran’s crude oil exports dropped in June after a spike in May, yet sales were still above the level allowed by an interim deal aimed at curbing Tehran’s nuclear programme, according to sources who track tanker movements. Under the agreement signed in November between Iran and six world powers, which came into effect in January, Iran’s exports should average 1 million barrels per day (bpd) through to July 20. Iran’s oil exports slipped to 1.21 million bpd in June, from 1.33 million bpd in May, one of the sources said. “Total exports are about 10 percent down month-on-month as China and India have taken less,” the source said. “Exports in June to Japan and Turkey have been firm and South Korea has taken more, making up for lower sales to that destination in May.”

A second source said Iranian crude exports fell by 100,000 bpd to almost 1.2 million bpd in June from May’s high levels. China, Tehran’s largest oil client, has since late 2013 been stepping up purchases from the OPEC country. China’s Iranian crude oil imports expanded 36 percent in May, or 757,900 bpd, from a year ago to the second highest on record, customs data showed last week. Though higher exports since late 2013 have bolstered Iran’s coffers, officials in US President Barack Obama’s administration have said they expect Iran’s oil sales to average “approximately” 1 million bpd over the entire six-month period under the agreed deal, which expires on July 20 but can be extended for up to six months.

“Iran is increasingly emboldened to export its oil,” said Mark Dubowitz of US-based independent think-tank Foundation for Defense of Democracies (FDD). “The Obama administration already has sent the message that it won’t crack down on Iran’s excess crude oil sales, condensates exports, or its transfer of crude oil to (Syrian President Bashar al-) Assad despite congressional demands,” he added.

The US administration has argued that condensates, a premium-price form of very light oil found at natural gas fields and mostly used to make plastics, do not count as crude oil; that Iranian gifts of oil to Syria are not “sales” and so also do not count; and that Iran is allowed to sell between 1 million and 1.1 million bpd under the deal, a range slightly above the White House’s public estimate. The extra supply is not unwelcome in the global market at a time of concern about flows from Iraq. “The US authorities appear to have been very tolerant of rising Iranian condensate supplies, which have boosted observed imports of Iranian oil by Asian buyers,” a senior executive at an oil company said.

US Secretary of State John Kerry warned Iran this week it still had to prove its nuclear ambitions were peaceful as the latest round of atomic talks with world powers was due to start in Vienna on Wednesday as the July 20 deadline for an agreement loomed. In Tehran, Iranian President Hassan Rouhani said in a speech Western sanctions were already crumbling. “US negotiators seem so eager for a nuclear deal that they appear willing to steadily loosen the once crippling restrictions on Iran’s oil lifeline even before winning the critical concessions,” the FDD’s Dubowitz said.

The US Federal Reserve is not involved in clearing payments made by India to Iran to pay some of its dues for oil bought from the Middle East country, a US Treasury Department spokeswoman said last week. The comment was in response to a June 19 Reuters story citing sources with knowledge of the matter as saying that India planned to clear some oil payments to Iran through the United Arab Emirates central bank. According to the sources, the new payment system includes a step in which funds would be routed through the Federal Reserve. “We can confirm that no US financial institutions, including the US Federal Reserve Bank, will be or have been involved in this payment installment,” the spokeswoman for the Department for Terrorism and Financial Intelligence said.

An interim nuclear deal has allowed Tehran access to $4.2 billion in blocked funds globally. The payments are to reward Tehran for cooperating in nuclear talks that, if successful, would pave the way for Iran to return to the international fold after decades of isolation. Asian buyers such as Japan and South Korea have cleared some of their oil dues as per a payment schedule approved by world powers in a breakthrough deal with Iran in November. The payment is spread over eight installments, ranging from $450 to $650 million each, from February to July. India is slated to take up the last three tranches of $550 million each. The payments are linked to Iran making continuous cuts in its nuclear programme.

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