Iran Oil Output May Drop By 950,000 Barrels By July

Bloomberg -- Iran’s oil production may decline by as much as 950,000 barrels a day by the middle of this year as European Union and U.S. embargoes take effect, the International Energy Agency said.

Output in March was 50,000 barrels a day less than the previous month, the Paris-based IEA, adviser to 28 industrialized nations, said in its monthly Oil Market Report today. Iran pumped 3.3 million barrels, compared with a pre- sanction rate of 3.55 million at the end of 2011, it said.

“Recently enacted E.U. and U.S. sanctions on Iran’s oil and banking sectors are affecting shipping and trade flows as well as undermining Iran’s crude production outlook,” the agency said. The “long list of countries planning to implement import cuts in coming months suggests Iranian output could plummet to 2.6 to 2.8 million barrels a day by mid-summer, unless alternative buyers can be found.”

Iran’s traditional crude buyers are struggling to arrange payment, secure tankers and get insured as U.S. and European Union leaders tighten pressure on Iran. Crude exports in the second-biggest producer of the Organization of Petroleum Exporting Countries averaged about 2.2 million barrels a day in 2010, according to the U.S. Department of Energy.

The IEA said in its March report that Iran’s crude output may drop by 800,000 to 1 million barrels a day.

U.S. sanctions cut off any companies or countries trading with Iran from the U.S. financial system unless they show they have taken steps to substantially reduce their reliance on Iranian oil.

In mid-March the U.S. granted waivers to Japan and 10 E.U. countries --Belgium, the U.K., the Czech Republic, France, Germany, Greece, Italy, the Netherlands, Poland and Spain-- deemed to have cut back on purchases. As a result, banks in these countries have been granted a six-month waiver from being cut off from the US financial system.

Iran’s two largest buyers, China and India, and other major importers Turkey, South Korea and South Africa, were absent from the list. Since then, a number of countries have announced plans to reduce purchases. The U.S. will next review compliance with sanctions at the end of June. The IEA highlighted the following countries’ response to sanctions.