Asian buyers of Iranian crude will deepen import cuts in 2013 and struggle to send cash to Tehran to pay for oil as tightening Western sanctions choke the flow of hard currency to Iran's coffers.
Tough sanctions from the United States and Europe to force Iran to curb its nuclear programme have already cut Iran's oil exports by more than half this year, costing it more than $5 billion a month.
The reduced cash flow has contributed to a plunge in the value of Iran's currency, the rial. Iran says it is enriching uranium to fuel power plants, not make bombs.
Almost all of Iran's remaining exports flow to China, South Korea, Japan and India. The additional cuts Asian importers will make in 2013 would translate into a fall in sales of about 135,000 barrels per day (bpd), resulting in a loss of about $5 billion next year based on today's oil price, according to Reuters calculations.
The United States requires buyers of Iranian crude to progressively cut imports to ensure they secure exceptions to the sanctions when they come up for review every 180 days.
Making matters worse for Iran is a little-noticed provision in U.S. sanctions, which goes into effect on Feb. 6, that states funds being used to pay for oil must remain in a bank account in the purchasing country and can be used only for non-sanctioned, bilateral trade between that country and Iran.
Any bank that repatriates the money or transfers it to a third country faces a sanction risk, including being cut off from the U.S. financial system.
That could halt most of the flow of petrodollars to Iran, given that the value of its oil exports is far higher than what it imports from its biggest customers.
Saudi Arabia, Iraq and West Africa are some of the producers that have gained as Iran's market has shrunk.
To continue with exports, Iran is becoming increasingly creative in dodging Western sanctions, managing to sell a rising volume of fuel oil to generate revenue equal to up to a third of its crude exports.
Reuters previously reported that Iran had exported its own fuel oil to Malaysia on a National Iranian Tanker Company vessel, before transferring it at sea to a Vitol-chartered tanker. Iran also used a little-known port off the East Malaysia coast to hide millions of barrels of oil.
India plans to