European refiners have started to sever links with Iran, stopping spot purchases of crude ahead of a European Union meeting later this month that could impose a full oil embargo on Tehran, Financial Times reported.
Industry executives and oil traders said that some refiners have either stopped or reduced new purchases of Iranian oil, although they continue to receive monthly oil supplies under earlier long-term agreements, or term contracts, that they cannot break without incurring penalties.
Traditionally, refiners buy two-thirds of their oil under term contracts and the rest on the spot market, although the precise split varies from company to company. In the event of an embargo, European refiners could declare force majeure and cancel their term contracts without penalty.
Companies are bracing themselves for an EU embargo on Iranian oil exports as western countries intensify pressure on Tehran to abandon its suspected nuclear weapons program.
The US has also introduced sanctions to penalize foreign financial institutions dealing with Iran's central bank, which clear most oil exports.
The stoppage has forced Iran to start stockpiling crude at supertankers anchored in the Gulf.
Iran is the world's third-largest oil exporter and ships about 2.3 million barrels a day, mostly to Asia. The EU buys about 450,000 b/d on average.
Oil prices have risen above $110 a barrel since Iran threatened to shut down the Strait of Hormuz, the world's most important oil chokepoint, accounting for about a third of all seaborne traded oil. Oil fell to a low of $99 in October amid global economic growth worries.
The US stopped importing Iranian oil in October 1987 and has successfully pressed European companies, including Total and Royal Dutch Shell, to stop investing in the country's vast energy sector.
Edited by: S. Isayev