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No crude oil from Iran: Banks afraid to open LCs, CPC seeks US help
View(s):Sri Lanka has stopped all crude oil imports from Iran despite being exempted from US sanctions because banks refused to open letters of credit and insurance companies would not provide cover, a senior official said yesterday.
Ceylon Petroleum Corporation Managing Director L.E. Susantha Silva said he had requested US diplomats to facilitate these transactions by, for instance, giving an assurance to the relevant banks and insurers that they would not be penalised.
On Friday, the Obama administration extended waivers of US sanctions to major Asian petroleum consumers for reducing their imports of Iranian oil. Sri Lanka was among twenty countries permitted to buy Iranian crude in limited quantities. It first received a waiver in June.
Mr. Silva welcomed the US decision but said the waivers did not work in practice. “After June, we had only one shipment from Iran,” he revealed. “The problem was that we couldn’t open letters of credit and there was no insurance; so ships couldn’t travel.” Insurers refused to provide protection and indemnity cover as well as cargo cover.
Agency reports said exemptions meant that banks and other financial institutions based in the relevant countries would not be penalised under a US law enacted to pressure Iran over its nuclear programme. Mr. Silva said, however, that the CPC’s bankers—People’s Bank and Bank of Ceylon—were too afraid of being blacklisted or to take the risk of opening letters of credit.
“It is understandable from their perspective because Sri Lanka’s economy would come to a standstill if they were blacklisted,” he admitted. He said the CPC usually imported around 13 shipments of Iranian crude a year. “In 2011 this reduced to nine. This year we were allowed to import ten shipments in the six months since June but we couldn’t.”
Because of these constraints, the CPC bought Arab Light crude oil from Saudi Arabia and Oman Blend from Oman. “We had certain problems in our refinery,” Mr. Silva observed. “When we ran with Arabian Light, the refinery couldn’t cope with the high sulphur content. It reduced the lifetime of certain parts of the refinery and added to cost. We have adjusted the problem now.”
CPC sources said the authorities would still prefer to import Iranian crude because there was better yield resulting in higher profits. “With Iranian crude, we ran 6,600 tons of crude a day producing 45,000 barrels,” Mr. Silva said. “With Arab Light, it came down to 5,000 tons.”
It was in this regard that CPC officials recently held discussions at the US embassy. Details were not immediately available. A fresh shipment of Arab Light crude is expected in 10-15 days from Abu Dhabi while more Omani stocks will arrive in January.
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