SINGAPORE/TOKYO April 4 (Reuters) – Japanese refiners will cut Iranian crude imports yet again in April as they shy away from renewing annual contracts, showing continued commitment to U.S.-led sanctions over Tehran’s nuclear programme.
Japan, the world’s third largest oil consumer, has strongly backed calls to cut Iranian oil imports and earlier reductions were hailed by its top business and military ally, the United States, as an example to other countries.
“They don’t want to lose out to the sanctions,” a trader at a north Asian refiner said. “The sanctions will freeze assets of Japan’s banks in the United States, and I don’t think they would like that to happen. Japan is a big exporting country.”
Pressure is mounting on other buyers of Iranain crude to cut imports as the United States and European Union tighten sanctions that the West says is aimed at developing atomic weapons but that Iran says is purely civilian.
That’s making it hard for refiners to find shippers, insurers to underwrite trade and banks to clear payments.
Japan has cut imports even as oil demand has risen following last year’s nuclear disaster. Buyers in the north Asian nation have also been locked in negotiations with Iran for months over annual contracts, with uncertainty surrounding trade with Tehran complicating discussions.
CUTS BY JAPAN REFINERS
JX Nippon Oil & Energy Corp, Japan’s biggest oil refiner, has not renewed a contract to buy 10,000 barrels per day (bpd) of Iranian crude, which expired in March, the sources said, declining to be identified as they are not authorised to talk to the media.
Apart from JX, at least three other Japanese firms, including Idemitsu Kosan Co and Cosmo Oil Co, which together buy around 40,000 barrels per day, will not lift any Iranian crude in April, industry sources said. These three do not lift Iranian oil every month.
All together, the cuts in April would represent nearly 15 percent of Japan’s imports from Iran in the first two months.
Japan’s imports from Tehran fell around 28 percent in the first two months of the year to 322,900 barrels per day, compared with a year earlier, according to data from the Ministry of Economy, Trade and Industry.
JX has another contract for 80,000 bpd of Iranian crude, which was renewed in January and imports under this agreement will continue, they said.
Showa Shell Sekiyu KK, Japan’s largest buyer of Iranian crude, has not renewed its annual term contract due to differences over terms, but the company will import oil from Iran in April, three sources said on Wednesday.
Showa Shell imports 100,000 barrels per day of crude from Iran, and its annual contract was due for renewal April 1.
The cuts by Japan have earned Tokyo an exemption from the United States, along with 10 other EU nations, from financial sanctions because they have significantly cut purchases of Iranian oil. Soon after the exemption, Finance Minister Jun Azumi said Japan would continue to cut imports of Iranian oil.
Japan’s government wants the nation’s crude buyers to cut Iran imports by 10 percent to 20 percent a year, Akihiko Tembo, the chairman of the Petroleum Association of Japan, said in March.
FORCE MAJEURE
Reflecting the difficulties in doing business with Tehran, Japanese refiners have secured a clause in annual contracts that exempts them from incurring a penalty if international sanctions prevent crude buyers from taking delivery of Iranian oil.
The Asian country’s refiners have negotiated the inclusion of sanctions in a clause usually limited to exempting buyers and sellers from liability due to fires, accidents and natural calamities.
The force majeure clause would exempt Japan’s refiners from liability if they were unable to import crude due to the increasingly stringent sanctions.
Japanese companies are already struggling to secure insurance cover for tankers shipping Iranian crude. Starting in July, European insurers and reinsurers will be prohibited from indemnifying ships carrying Iranian crude and oil products anywhere in the world as per sanctions on Tehran.
Although Japan’s P&I Club, which provides insurance for shipping companies, does not directly fall under the sanctions regime, it is largely dependent on the European reinsurance market to hedge its risk.
ASIAN CONSUMERS
China, Japan and South Korea, the biggest buyers of Iranian crude in Asia, have all cut purchases. The three have together cuts imports from Tehran by 22 percent to a total of 56.03 million barrels in the first two months of the year, according to data compiled by Reuters.
China’s crude imports from Iran fell a cumulative 21.5 percent in the first two months to 23.7 million barrels, according to customs data.
South Korea’s imports from the Islamic Republic dropped 14 percent, at a combined 12.93 million barrels in January and February compared with 15.04 million barrels a year earlier, state-run Korea National Oil Corp (KNOC) said.