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European Oil Traders Corner Iranian Gasoline Markets

Europe’s trading giants Guvnor and Vitol have organized their first shipments of gasoline to Iran as they vie for Iranian market share in the early phase of this game.

While Vitol delivered its first supply in March, Guvnor sent its first shipment in February, according to shipping sources, as reported by Platts. Both loaded 35,000 MT of gasoline, in medium range tankers from the UAE port of Fujairah and discharged at Bandar Abbas in Iran.

Iran exports condensates and imports gasoline, but even after lifting of sanctions, the U.S. public and U.S. corporations are still banned from conducting business with Iran. Firms are sceptical about doing business with Iran due to insurance- and banking-related issues, thereby limiting Iran’s ability to reach its targeted output.

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However, large trading firms such as Switzerland-based Guvnor and Geneva-based Vitol are utilizing this opportunity to gain a foothold in the Iranian oil supply.

Vitol paid around $260,000 for the Italian-flagged medium range tanker, Alessandra Bottiglieri, whereas, Gunvor's shipping arm Clearlake paid around $290,000 for the Maersk Messina, according to Platts sources, for their respective supply.

The insurance in the shipping industry is dominated by a group of 13 major protection and indemnity clubs under the umbrella of the International Group of P&I Clubs. Most of the companies, which provide re-insurance, are based in the U.S., therefore, many ship owners are reluctant to supply to Iran.

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"These are early days in the lifting of sanctions and no one wants to be on the wrong foot because they cannot afford to be losing their business in the U.S., sanctions have only been suspended, not permanently withdrawn," Peter Sand, chief shipping analyst of the Baltic and International Maritime Council, said, as reported by Platts.

After recent deliberations with the U.S. government, the Japan Ship Owners' Mutual Protection & Indemnity Association confirmed that the 13-member IG P&I Clubs have increased the fall-back reinsurance protection from $80 million in February to $500 million in March, yet it is still well below the full P&I insurance cover of $7.8 billion.

Though the ship owners are keeping their vessels in the Persian Gulf, they are demanding a premium over their regular rate to supply into Iran.

But this is where it gets tricky: Keeping vessels on standby to supply to Iran has caused a shortage of vessels to supply to Singapore, hence, rates have increased more than 50 percent, from $100,000 at the beginning of the year to $155,000-$165,000 for cross-Singapore runs, reports Platts.

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The Iranian leadership is wary of the forthcoming U.S. Presidential elections, as the results can greatly alter relations between Washington and Tehran, putting a question mark on complete revocation of sanctions.

Nonetheless, as the European Union has repealed all sanctions, the European trading giants want to make the most of the opportunity because Iran is a dark horse, which can make a material difference in the near future.

Iran can prove to be very profitable due to the large amount of imports and exports possible from there. Therefore, large trading houses are in the running to build relations and get a bigger share of the Iranian pie.

By Rakesh Upadhyay for Oilprice.com

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