Fujairah’s oil costs rising on Iran sanctions, Barclays says

The UAE’s port of Fujairah will face higher costs as sanctions against Iran curb supplies of fuel oil for the Middle East’s biggest ship-refuelling centre, Barclays said.

Fujairah depends on Iran for nearly a third of the 1m metric tonnes of fuel oil it buys and sells each month, Barclays analysts Miswin Mahesh and Amrita Sen wrote today in a research report.

As sanctions tighten, Iranian supply will probably flow to the competing maritime hub of Singapore, which trades four times as much fuel oil as Fujairah, Barclays said. Fuel oil is the residue from refining crude and is used as bunker fuel in ship engines and to fire power stations.

International Maritime Organisation standards for ship fuel that took effect this year have boosted demand for Iranian product because of its comparatively low sulfur content.

Refuelling costs at Fujairah may grow as traders there must find alternative sources of low-sulfur fuel to blend with more polluting varieties and meet the IMO’s requirement that ships’ global sulfur emissions not exceed 3.5 percent, Barclays said.

The premium for fuel oil in Fujairah versus that in Singapore peaked in February, the bank said.

“With the pressure from sanctions increasing over the past two months, more Iranian fuel oil is heading to Singapore, thereby reducing supplies to Fujairah,” Barclays said.

The US and European Union have imposed sanctions on Iran’s financial and energy industries to try to pressure the country to abandon its nuclear programme.

The US and its allies say the programme is aimed at developing weapons, a charge Iran denies. Fuel oil prices may “spike” in the third quarter as additional sanctions take effect, and prices will probably rise through 2013, according to Barclays.