Although President Hassan Rouhani has granted permission to Oil Minister Bijan Namdar Zanganeh to sell oil with a discount, such a strategy cannot serve Iran's national interest, the country's former representative to the Organization of Petroleum Exporting Countries said.
"Selling crude at generous discounts is a serious mistake and will have an adverse effect on the country's future oil trade," Mohammad Ali Khatibi was also quoted as saying by Mehr News Agency.
"Prices are all clear in the market. Offering high discounts to buyers will motivate them to ask for more substantial discounts that puts the country's revenues in danger."
According to the official, even if the National Iranian Oil Company intends to negotiate trade discount, it should be decided case by case and within a specific framework.
NIOC officials have always rejected the notion that Iran is underselling its crude oil, yet it may work under looming US unilateral sanctions that can decrease the country's income.
Khatibi believes that discounts should be on a par with the global market prices.
Reports circulated last week that Iran has adopted an aggressive pricing strategy by giving special discount on its oil compared to Saudi Arabia’s similar blend.
--- Ways to Circumvent Sanctions
Energy experts, including Khatibi, assert that neither underselling crude nor offering high discounts is an effective alternative.
Asked about other choices to mitigate the effect of the new round of sanctions to start from November 4, he said, "Dealing with Russian refiners and selling crude to them can be a more practical option."
The official proposes that Russian refiners can import and use Iran's oil as part of their feedstock, in which case Russia can raise its exports instead of providing its complexes with crude.
Underlining that Russia's cutting-edge refining complexes can easily adapt to Iran's crude, Khatibi said, "Should they accept the proposal, they can even mix a part of their crude with Iranian oil to supply the refineries with feedstock."
According to oil market players, including an unnamed chartering executive in the US, Houston, as the deadline for US sanctions on Iranian crude oil draws near, loadings are still going on from Iran and some shipping companies view it as an opportunity to get hefty premiums.
"Iranian crude loadings for export will continue even after the US sanctions are fully implemented. It will not stop completely. Somehow companies will manage to ship out," the executive said.
New companies that do not have any connection with US banking, insurance or currency system, might be created to continue Iran-related businesses without contravening US laws.
Apart from state-owned National Iranian Tanker Company, Greek ship owners already dominate crude exports from Iran, with 81 tankers moving Iranian crude since January, VesselsValue, a UK-based shipping consultancy estimated.
"The exact Iran premium will depend on the daily market. It will have to be enough to cover additional insurance costs and the business risk of restrictions on trading at US ports after loading a cargo in Iran," Court Smith, an analyst with VesselsValue, said.
This will vary depending on the owners, he added.
S&P Global Platts Analytics estimates some 1.4 million bpd of Iranian oil might be taken off the market by November.
This means that Iran is likely to continue to export sizable volumes even after the sanctions come into effect. Last year, the country exported close to 3.8 million bpd, according to industry estimates.
About 155 very large crude carriers and Suezmaxes have undertaken close to 350 voyages from Iran, according to VesselsValue so far this year.
The most traded Iranian crudes are its Heavy and Forozan grades, which can be substituted with Basrah Light, Arab Medium, Oman and Kuwaiti Export Crude, a VLCC broker said.
European buyers are likely to replace Iranian crude with West African grades, which can be seen already.
Many owners, including some of the Greeks, have stopped loading cargoes from Iran due to a lack of Protection and Indemnity cover, which automatically becomes non-operational if the voyage involves Iran.
Nevertheless, there are others who take the risk of picking up cargoes from Iran, staying under the radar and hoping that claims under the protection and indemnity cover, a third party legal liability insurance for ship owners, will not arise.
