Oil giant stepped up orders of Iranian crude while others halted trade amid sanctions imposed by UN, EU and US
Monday 27 September 2010 18.37 BST
Iran’s oil depot at Kharg Island, the country’s main export terminal in the Persian Gulf. Oil is a major export for Iran. Photograph: Kaveh Kazemi/Getty Images
Shell, the Anglo-Dutch oil giant, paid the state-owned Iranian oil company at least $1.5bn (£0.94bn) for crude oil this summer, increasing its business with Tehran as the international community implemented some of the toughest sanctions yet aimed at constricting the Islamic republic’s economy and its lifeline oil business.
Sensitive trading documents seen by the Guardian show the UK-registered company stepped up its orders of Iranian oil at a time when other major buyers, including BP and Reliance Industries, India’s largest conglomerate, halted orders amid impending trade sanctions aimed at curbing Tehran’s perceived desire to acquire nuclear weapons.
Shell is not accused of acting illegally because the sanctions enforced by the US, UN and EU stopped short of banning the import of Iranian oil. But its trades with the state-owned oil company, a major contributor to the finances of a government which has made its nuclear programme a priority, are likely to expose Shell to growing political pressure.
Following the UN and EU sanctions, William Hague, the British foreign secretary, reaffirmed that the UK does not encourage trade with or investment in Iran because of “serious concerns about the nature of Iran’s nuclear programme”.
“We have made this clear when briefing companies operating in Iran, and will rigorously enforce sanctions,” a Foreign Office spokesman said last night. “We are serious about intensifying the pressure on Iran to return to the negotiating table.”
US President Barack Obama has said the new sanctions on finance, shipping and insurance were meant to demonstrate “the United States and the international community are determined to prevent Iran from acquiring nuclear weapons”.
Shell would not comment on the trades but insisted it is doing nothing illegal. “We do not comment on our trading activities but would underline that we continue to comply with all legislation,” a spokesman said.
The US, UN and EU sanctions imposed in June and July are aimed at persuading President Mahmoud Ahmadinejad back to the negotiating table to reach an agreement with the international community on his country’s nuclear programme.
“Washington tends to shine a spotlight on companies’ behaviour after sanctions and this could get them into trouble,” said Sam Ciszuk, Middle East energy analyst at IHS Global Insight.
Traders began to notice effects in the market for Iranian crude in the months before the sanctions were enforced. An analysis of purchases for Stasco, Shell’s trading company, shows that from May to August, instead of buying less oil from Iran as the sanctions were agreed, it ordered over $100m a month more than in the previous three months, a 27% increase.
Shell also enjoyed an increased discount on the index price as demand fell and some analysts warned of “reputational risk” for foreign companies trading with Iran. The flight of some buyers from trading with the National Iranian Oil Company is thought to have been a key factor in causing a floating backlog of tankers carrying unsold Iranian oil in the Arabian Gulf and Red Sea this summer, forcing the price down.
The trading figures show that buyers staying in the market were able to enjoy a greater discount on Iranian cargoes than in the three months to May, partly, industry insiders believe, because of the effect of the sanctions.
According to the details of one purchase by Shell, on 3 March, before the fresh sanctions, Stasco bought a 2.1m barrel load with a discount of $2.85 per barrel on the index price. On 5 July, after the imposition of fresh EU and US sanctions, it repeated the transaction with the same volume, grade of oil and transport route, but with the discount almost doubled to $5.50 per barrel. Consumer demand for oil-based commodities and the complexities of different firms refining cycles also affect the discount.
Shell said it buys Iranian crude at the official selling price, which is expressed as a discount to the benchmark oil price, and has not negotiated a further price reduction. It said it bought the same quantity of Iranian crude in the 12 months to August 2010 as it did a year earlier.
Iran is the world’s fourth largest oil exporter. The trade in crude represents 80% of exports, the US government estimates. The latest sanctions have made it harder to do business with Iran, targeting entities involved directly in nuclear, ballistic or missile activities, as well as banks, insurers and shippers who support Iran’s oil trade.
As the sanctions were passed into law, oil traders reported demand for Iranian crude began to fall; it became harder for buyers to obtain letters of credit from banks required to complete transactions with Iran and insurers became reluctant to cover cargoes for fear of falling foul of the toughened sanctions.
The data shows French and Italian oil companies, Total and API, also lifted more Iranian crude between May and August than in the previous three months, up 12% and 70% respectively. They also enjoyed greater discounts.
A spokeswoman for Total in Paris said the company would not comment on “market sensitive” trading data.
“When purchasing crude oil, we buy at market prices,” she said. “We have no intention to take advantage of sanctions. We respect international regulations and have stopped the sale of refined products to Iran, but currently the sanctions that have been applied by the UN and EU, when translated into French law, do not concern the trading of crude oil.”
A spokesman for API said: “The Iranian crude discount increased during the mentioned period just because of market conditions and refers to official prices in force. No sanction decided so far by the EU is relevant to importing crude oil from Iran; moreover, Iranian crude price evolution follows market conditions. Therefore crude importers are not commercially benefiting from any international sanctions.”
He added: “API will be, as always, absolutely firm in respecting any applicable law.”