The National Iranian Oil Company (NIOC) finalized a deal with the world’s largest oil trader, Vitol, loaning Iran about $1.05b guaranteed by future exports of refined products, Reuters reported. The deal was signed in October and will come into effect in January.
The pre-finance deal, which is the first such major contract signed between Iran and a trading house since sanctions were lifted in early 2016, comes on the heels of an announcement from Tehran that it had selected 29 foreign companies to bid in forthcoming oil and gas tenders, according to Oil Price. These important advancements highlight Iran’s determination to get its energy industry back on track.
It also re-establishes some old dealings with Western firms as Tehran is benefiting not only from easing of EU sanctions but also from reduced US restrictions on its access to dollars, which Iran needs to reignite its economy. Yet, foreign companies still tread carefully for fear of breaking a myriad of complex laws, and oil majors such as Shell, BP, and Eni have been slow to return as regular crude lifters.
Traders have increasingly turned to pre-finance in recent years to secure long-term access to large volumes of oil and products. This system has kept the Iraqi region of Kurdistan afloat during its war with Islamic State. Moreover, traders have also been looking at restarting the Caspian crude and product swaps with Iran but the process has been slow to pick up.
OPEC’s third-largest oil producer, Iran, exports more than 500,000b/dof refined products, mainly fuel oil, petroleum gas and naphtha to Asian markets.