Buyers are attracted to substantial discounts on raw materials offered by Moscow, causing a drop in demand for Iranian products.
Russian energy suppliers found a window of opportunity in Asia against the backdrop of Western sanctions, offering raw materials at a significantly reduced price. However, this has a negative impact on another "resistance economy", Iran.
Industry analysts recorded that Iranian exports to China, which had reached 700-900 thousand barrels a day in March, fell by 200-250 thousand barrels in April. At the same time, crude supplies to China from Russia increased by 16 percent in April, compared with March.
According to the observations, in the middle of this month, about 20 tankers with Iranian crude, which had failed to find buyers, were docked in Singapore. Some of them have been anchored since February, but the number of vessels began to grow during the spring season.
The analyst firm, Kpler, notes that the volume of Iranian oil waiting to be shipped in Singapore's port increased from 22 million barrels in early April to 37 million barrels in mid-May. According to the researchers, this situation signals market competition.
According to Hamid Hosseini, a board member of Iran's Union of Petroleum, Gas and Petrochemical Exporters, nearly half of Russia’s exports might be diverted to Southeast Asia, especially China. "And this is a huge potential threat to Iranian oil," he admits.
Notably, liquefied petroleum gas (LPG) sales face the same issues. Industry insiders told Nikkei that the cheap supply of raw materials from Russia has affected South Asian players and the demand for Iranian products has reduced. Hosseini said Tehran used to sell LPG to Afghanistan and Pakistan for around $600-700 per ton, but recently its repeat customers said they would only buy it at $450. Analysts say the reason was the changes in Russian supply.
The Iranian oil and gas industry, which has in recent years adopted several means to overcome US extraterritorial sanctions, considered selling hydrocarbons, one of the most important elements of its struggle for survival, to China. The countries even signed a long-term strategic agreement that sparked speculation that Tehran was on the verge of losing its economic sovereignty.
Later, against the backdrop of the Vienna talks on restoring the nuclear deal and the outbreak of war in Ukraine, the Iranian establishment hoped for an accelerated withdrawal of the Islamic Republic from sanctions. The reason for such expectations was the keen interest of Western capitals in the rejection of Russian energy resources and the search for alternatives.
However, the "nuclear" dialogue was eventually put on a nine-week pause due to the endless raising of the bar on political demands, which put the American delegates, already constrained in their manoeuvring by domestic pressures, into an absolute deadlock. As a result, for some time, Iranian officials were forced to float to the Western media the theory that the delay of the dialogue in Vienna helps Tehran because its national economy is supposedly not so dependent on the restoring of the atom deal.
In these circumstances, Russia and Iran have tried to appeal demonstratively to the high quality of relations within their bilateral tactical alliance. A trip to Tehran by Russian Deputy Prime Minister Alexander Novak was devoted to the issues of deepening economic cooperation. According to Reuters sources, the two countries made efforts to agree on the terms of the force majeure oil trade. However, analysts have strong doubts about this, given that the dialogue would weaken competition between Russian and Iranian oil suppliers.
Especially since refining crude from the Islamic Republic is more costly, industry representatives say. And if there is an alternative, Asian buyers would be relieved to turn to Moscow. "No one is interested in Iranian oil anymore because Russian grades are of better quality and lower prices. Sellers of Iranian oil are under a lot of pressure," a Chinese trader admitted to the Western media.
Guarantees instead of insurance
But the risk to the reorientation of Russian exports is posed by the EU's intention to extend sanctions against the Kremlin by banning insurance coverage for oil tankers transporting Russian oil.
The Wall Street Journal estimates that the measure is designed to cut Russia off from buyers in Asia and possibly other regions because Western companies provide insurance for most of the world market. "It would be a very strong barrier to Russian oil exports," said Lars Barstad, head of Frontline.
Some companies have already started refusing insurance coverage for Russian oil tankers, industry insiders say. Even though the restrictions have not been introduced yet, they are trying to introduce a self-regulation regime and anticipate trends. According to Maria Berceletu, an analyst at Signal Maritime Services, leaders in marine risk insurance have been under moral pressure over the past few months because of the war. "A disruption or short-term interruption in marine insurance cannot be ruled out," she notes.
Russia will suffer the consequences of the insurers' actions in the coming months. Moscow's apparent success in reorienting raw materials toward Asian markets, according to Western forecasts, could be replaced by a major setback in June and July of this year.
In such a situation the insurers of those countries, which in recent months became buyers of hydrocarbons from Russia, could offer their services, but their ability to cover large risks is also probably not very great.
One option remains: local Russian insurers, who will need to issue a state guarantee and who will undoubtedly bargain for better terms. This situation will necessarily entail higher costs for the country's management, which, together with other related difficulties in the national maritime sector, may complicate the access of Russian exporters to buyers even further.