Iran Oil Exports Fall, Embassy Shut

 Wall Street Journal, September 7, 2012

By TENNILLE TRACY and PAUL VIEIRA

International sanctions helped drive down Iran's oil exports nearly 45% in July, a new report showed, while Canada said on Friday it had closed its embassy in Tehran and would expel all Iranian diplomats in Canada.

Iran is "the most significant threat to global peace and security in the world today," Canadian Foreign Affairs Minister John Baird said of the embassy closure, the latest step by a Western nation to isolate Iran.

"Our diplomats serve Canada as civilians, and their safety is our No. 1 priority," he said. "It just got to a point where we just are very uncomfortable, putting their lives at risk."

Mr. Baird cited Iran's support for the Assad regime in Syria, and Tehran's routine threats to harm Israel as further reasons to suspend diplomatic relations. He said Canada would also formally list Iran as a state sponsor of terrorism. Representatives at the Iran Embassy in Ottawa couldn't be reached for comment.

The European Union began a full embargo on Iranian oil on July 1, while U.S. sanctions that took effect in July target banks that process oil payments with Iran's central bank, in a bid to push Tehran to compromise over its nuclear program. High-level international negotiations last convened in June.

A group of European countries has been working on further sanctions which could target Iran's financial and energy sectors, with a view to passing the measures next month, EU diplomats said.

"We must increase the pressure on Iran, intensify sanctions, add further to the EU sanctions already in force which are having a serious impact on Iran," U.K. Foreign Minister William Hague said on Friday on his way to a meeting of EU diplomats in Cyprus.

German Foreign Minister Guido Westerwelle said he sees a growing consensus for additional Iran sanctions.

In a sign of some success in Western efforts so far, India cut oil imports from Iran by 42% in July compared with June, while Chinese imports were down 28% over the same period, according to Rhodium Group, which gathers information from customs data and other sources. Japan didn't import any Iranian oil during the month, it said.

Iran delivered an average of 940,000 barrels a day in July, down from 1.7 million barrels in June, Rhodium said. That is a slightly bigger drop than the International Energy Agency found in earlier estimates, which didn't include country-by-country tallies.

Iran's oil profits dropped to an estimated $2.9 billion in July, Rhodium said, down from $9.8 billion in the same month last year. The numbers don't reflect revenue Iran is collecting from oil it is allegedly smuggling out of the country.

Energy analysts cautioned that oil-trade data were volatile and the picture could change in coming months as Iran tries new ways to reach foreign markets. Among other things, Iran's customers may overcome difficulties getting their oil shipments insured.

In addition, if global oil prices continue their upward trend, cheaper Iranian oil will become more attractive. "The temptation for Beijing to allow traders to buy discounted Iranian spot cargoes and relieve some pressure from the market would become pretty compelling," Rhodium Group partner Trevor Houser said.

Mr. Houser said Iran's oil shipments were likely to remain below 1.3 million barrels a day this year, an increase from July's numbers but still low in historic terms.

Iran, a member of the Organization of the Petroleum Exporting Countries, holds the world's fourth-largest proven oil reserves.

The State Department handed out six-month exemptions to its sanctions to all major buyers of Iranian oil, including top importers China, India and Japan. The State Department said the countries had significantly reduced their purchases of Iran's oil.

U.S. officials will be watching whether figures for August and September follow the July trend as they determine which countries qualify for a second round of exemptions from the sanctions.

"Countries which continue to significantly reduce purchases of crude oil from Iran may be eligible for a renewed exception," said a State Department spokeswoman. She declined to say when the department will decide.

China, the largest single buyer of Iran's oil in 2011, has declined to commit to reducing Iranian oil imports, saying it has no obligation to follow Washington's dictates. Beijing's imports have nonetheless been decreasing, and price disputes with Iran—rather than political considerations—has played a role.

The odds of the Obama administration holding back exemptions for major buyers of Iranian oil are still very low, said Mike Zolandz, a partner at the law firm SNR Denton, which is involved in sanctions law.

The White House, although concerned about keeping up pressure on Iran, also wants to avoid a diplomatic tangle with China and other influential global players, Mr. Zolandz said.

China's decision to continue importing Iranian oil is "reasonable, justified and legitimate," said Geng Shuang, a spokesman for the Chinese Embassy in Washington. "China always opposes one country's imposition of unilateral sanctions on another country on the grounds of its domestic laws," he said.

—Laurence Norman contributed to this article. Bahman Baktiari