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Key European refiners start to halt Iranian crude imports

London — Key buyers of Iranian crude in Europe are starting to cease imports of Iranian crude for September-loading cargoes as the first round of US sanctions on Iran kick off next month.

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Trading sources at refineries in Spain, Italy and France that actively buy Iranian crude told S&P Global Platts that August-loading stems were probably the last time they would lift Iranian crude as securing banking, shipping and insurance around Iranian crude transactions were already a huge challenge.

The US sanctions specifically targeting Iran's oil sector snap back on November 4 but the first set of sanctions aimed at Iran's financial sector start on August 6, and this is expected to make it even tougher for refiners to buy Iran's crude.

"I think August is the last. It will get -- [and it is getting] more and more difficult to deal with...probably August will be the last month to lift. All around difficulty with banking, shipping," a source at an European refiner said.

Europe is a key outlet for the OPEC member, taking around 600,000-700,000 b/d, or one-third, of Iranian crude exports.

The key buyers of Iranian crude in the region are Turkey, France, Italy, Spain and Greece.

Sources said these refiners were now already looking to replace Iranian barrels with crudes from Iraq, Saudi Arabia and Russia.

"Gradually everyone will stop buying Iranian barrels so I assume that Iraq's Basrah Light and other similar crudes will gradually be more appreciated," said a source from a European-based trading house. "As far as I understand August will be last month."

The only country in this region unlikely to halt Iranian crude imports is Turkey, which is likely to continue doing business with Iran, sources said.

Turkey buys almost 150,000-220,000 b/d of Iranian crude, making it one of the top five customers of Iran's oil.

FLOWS TO EUROPE

Flows to this region have fallen steadily in the past few months as shipowners and companies have already been treading carefully for fear of falling foul of US sanctions.

Flows to Europe in June fell to 485,768 b/d compared to 573,966 b/d and 649,032 b/d in May and April respectively, according to Platts estimates. Exports to this region in March were as high as 761,418 b/d.

Trading sources said there were still a handful of European banks and shipping companies willing to engage with Iranian crude transactions, but this number was expected to dwindle in coming weeks.

Iran, the third-largest oil producer in OPEC after Saudi Arabia and Iraq, is producing around 3.78-3.80 million b/d of crude oil, according to Platts estimates.

From 2011-2015, when the EU and US had enacted sanctions on the transportation and purchase of Iranian crude, Iran saw its exports fall by almost 1 million b/d.

Iran has doubled its oil exports to about 2.2 million-2.4 million b/d since the nuclear deal was implemented in January 2016.

EU foreign ministers last week backed draft rules intended to protect EU companies dealing with Iran from US sanctions related to Iran's nuclear activities, taking them a step further towards becoming binding.

The EU is also continuing its discussions with Iran and national governments to find ways to ensure trade with Iran can continue despite the US plans to reinstate sanctions.

But this has not produced much confidence among European refiners.

The EU has formally added the US sanctions to the EU's blocking statute, which is set to enter into force on August 5, as long as the European Parliament and national governments do not object before then.

The EU also set up a specific EU-Iran working group to look at oil-related issues, including revenue transfers, storage, and shipping, including access to tankers and ports.

--Eklavya Gupte, eklavya.gupte@spglobal.com

--Edited by Jeremy Lovell, jeremy.lovell@spglobal.com