UAE Fuel Oil Market "Economics Just Don't Work" Without Iranian Oil

"You have to touch Iranian fuel oil," if you deal in the UAE, said a source

Western sanctions against Iranian oil products are only partly effective, with hundreds of thousands of tonnes of fuel oil exported monthly, Reuters reports.

Furthermore, prices in the United Arab Emirates market, which includes major bunkering port Fujairah, are dependent on the cheap oil, according to one trading source.

"If you deal with fuel oil and bunker business in the UAE, most likely you have to touch Iranian fuel oil because otherwise the economics just don't work."

The U.S. and European Union have imposed sanctions against the export of oil products from Iran since 2012 in a bid to halt the country's nuclear enrichment programme.

But several sources have said that Iranian exporters are evading the sanctions through such means as turning off ship tracker systems, ship-to-ship transfers, using remote ports to load and unload, blending Iranian products with others to disguise its characteristics, and selling the fuel oil with certificates from different origins.

According to trading sources and Reuters data, Iran currently exports between 200,000 and 400,000 tonnes of fuel oil per month as opposed to up to 650,000 tonnes before the sanctions took effect.

Smaller firms are said to be willing to take on shipments of Iranian oil which are sold at a discount to attract buyers, whereas larger international firms are more wary of dealing in the sanctioned products.

"Iranian fuel oil has been in the market in the UAE and everybody knows about it," said a trading source.

"People still get fuel oil and gasoil from Iran and ship gasoline to Iran."

Oil disguised as Iraqi Origin

Last month, maritime insurer West of England warned that ship-to-ship cargoes delivered at Khor Fakkan may contain Iranian oil disguised as being from Iraq.

Examination of the ship, PAGAS's, cargo specifications suggested the oil was Iranian and ship tracking data showed it had been at an Iranian port on the day its certificate said it had loaded Iraqi oil.

On Wednesday FleetMon vessel location data showed that the Togolese-flagged oil tanker, PAGAS, was en route to Iran.

But U.S. Treasury spokeswoman Haga Chemali said "we work closely with the Emirati authorities to uphold and enforce Iran sanctions and we convey our concerns when we have them."

The U.S. has blacklisted oil companies with trade links to Iran in 2012 and 2014, including UAE-based firms.

In August, Iran was said to have halted exports of 380 cSt fuel oil, which were said to make up some 20 percent of monthly sales at Fujairah.