DUBAI: A possible surge in Iranian oil exports from an end to sanctions will reboot a struggle between top Middle East producers for Asian buyers, with Iraq looking the most vulnerable.

The latest twist to the saga of aggressive marketing is the world oil glut and low prices, likely to fall more with added Iranian crude, making Tehran’s battle for market share tougher.

“You cannot produce without demand. There is a limit in any market and also long-term contracts between Gulf oil producers and Asian refiners,” said a Gulf oil source.

“That’s why it is hard to imagine big volumes just eating into the market share just like that. Even if the Iranians offered discounts and sold on the spot market, there is a limit.”

Under sanctions Iran became adept at offering discounts, easy credit and free shipping to keep in the game, recalling Iraq’s tactics to re-enter the market after the fall of Saddam Hussein. Baghdad’s position remains arguably more tenuous than the established might of top oil exporter Saudi Arabia.

State oil giant Saudi Aramco has also been slashing its prices for its crude to Asia. Fellow Opec members Iraq and Kuwait have followed suit.

“Everyone is after market share,” said an Iraqi oil source.

“Iraq is the one who is disadvantaged as it is trying to place new volumes and take new market share. If Iran would start to return it is almost inevitable that there would be some form of price war between them,” said Samuel Ciszuk, senior adviser on security of supply to the Swedish Energy Agency.

“You want to have the bulk of reliance by suppliers that are seen as much more stable,” he added.

“The Gulf states have a natural edge in that, they would not have to sell their crudes at a discount like the Iraqis or the Iranians.”

International negotiators are still working out details of the deal on Iran’s nuclear programme, but it would almost certainly lift sanctions only in stages, deferring even a partial return of Iranian crude exports until at least 2016.

Sanctions have halved Iran’s oil exports to just 1 million barrels per day from 2.5m bpd in 2012.

Sources familiar with Iranian oil policy say other Opec members have benefited by taking more market share when Tehran’s crude exports fell and expect them to make room for Iran, when sanctions against it end.

Big Asian refiners, some with plants used to dealing with Iranian oil grades, see themselves buying more from Tehran if sanctions hurdles are removed. They remain customers but the scale of their purchases has been limited by logistical, insurance and diplomatic factors linked to sanctions.

China is the main buyer of both Iraqi and Iranian crude.

“If they reach a consensus on the nuclear issue... and the US, the West relax controls on Iran’s oil sales, I believe China’s crude imports from Iran will increase,” Wang Dongjin, vice chairman and president of PetroChina, said on Thursday.

Published in Dawn, April 1st, 2015

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