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Highlights

Fuel oil exports begin to slow down

Loses East Africa as key LPG outlet

Refined oil product imports could be affected

London β€” Iran's headache ahead of looming US sanctions is not going to be limited to crude oil exports.

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While Iran's crude exports have started to slide, its woes could intensify as it is likely to face further obstacles in condensate and refined product markets.

Imports and exports of refined products and condensates for Iran will be affected as the OPEC member's economy comes under increasing pressure when the US sanctions snap back early November.

Besides crude, Iran is dependent on exports of condensates and fuel oil, while it relies on gasoil and gasoline imports.

Unlike when the US imposed sanctions in 2011, the Trump administration has broadened the list of secondary sanctions, not just targeting Iran's crude exports but also condensates and other oil products.

The new sanctions relate to the purchase of "petroleum products" which covers products "obtained from the processing of: crude oil (including lease condensate), natural gas, and other hydrocarbon compounds," according to the US Treasury.

There have been signs Iran's exports of fuel oil and LPG have started to fall in the past few weeks.

FUEL OIL FLOWS

Iran's fuel oil exports have also started to see a small impact, shipping and trading sources said.

The country exports most of its fuel oil to Singapore and Fujairah, and flows from Bandar Mahshahr and Abadan have fallen more than 10%, according to data from Platts cFlow, trade flow service.

"We are hearing that Iran fuel oil exports to Singapore collapsed in August," a source active in the Middle Eastern fuel oil market said. "Fuel oil flows to Fujairah (bunker market) and Singapore, including cutter stock from the Abadan refinery, should slow."

The Fujairah marine fuels market is one of the key export destinations for Iranian fuel oil. Its close proximity to Iran's refineries makes it hard to track exactly how much Iranian product is being bunkered there, and large quantities were said to have been sold at Fujairah while the previous sanctions were in force.

This time around the Fujairah market is in a much weaker state as a result of the diplomatic impasse following the imposition of sanctions on Qatar by Bahrain, Egypt, Saudi Arabia and the UAE in June 2017.

Bunker fuel sales at Fujairah were down about 20% from 2017's levels, industry sources told S&P Global Platts earlier this year.

Iran also hopes to develop its own bunker ports including Qeshm as a regional rival to Fujairah. That plan will likely be set back significantly by the US sanctions.

"With Iranian products...the question is who will be able to transfer them because even now very few shipowners go to Iran, and only if charterers provide evidence that the contract between the supplier and the receiver was signed and accomplished before May 5 [when the US withdrew from the nuclear deal]," a fuel oil source said.

LPG EXPORTS

Iran's LPG exports in August were at their highest in more than two years at close to 600,000 mt, with the bulk going to China.

But customers like Kenya and Tanzania, which used to buy LPG from Iran, have stopped imports due to the upcoming sanctions.

Kenya had emerged as a consistent buyer of Iran's LPG since early 2016 but imports have stopped since July, according to sources and tracking data.

As with crude, Chinese demand for Iranian LPG will play a vital role in determining the extent to which loadings are affected.

Chinese importers have been reducing US-origin cargoes since March, in anticipation of increased tariffs and taken up more from the Middle East especially Iran.

GASOLINE IMPORTS

Iran is still reliant on gasoline imports but domestic production has increased with the start-up of phase 2 of the Persian Gulf Star refinery.

Sources said Iran's gasoline imports, which come from India, North Asia and Southeast Asia will be affected due to the sanctions.

Despite being the third-largest producer of crude in OPEC, Iran has been dependent on refined product imports due to a lack of refining capacity and the impact of previous international sanctions.

Iran had aimed to end gasoline imports almost a decade ago but was thwarted by a lack of refining capacity.

Last week, sources close to Iraq's State Oil Marketing Organization, which is responsible for the country's fuel imports, requested its gasoline suppliers to quadruple its volumes from September to November.

Sources said a reason for the sudden need for such a huge escalation in gasoline imports was not given, though trading sources said it could be resold to Iran once US sanctions come into force. Representatives at SOMO were not available for comment.

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

--Jack Jordan, jack.jordan@spglobal.com;

--Eleni Pittalis, eleni.pittalis@spglobal.com

--Edited by Daniel Lalor, daniel.lalor@spglobal.com