Iran appears to have scored a victory in its cat and mouse battle with the West, with oil exports rising in December to the highest since European sanctions took effect.
But while Western attempts to crimp Iran’s oil trade  are a serious business, the cut and thrust of action and counter-action resembles a Tom and Jerry cartoon, with each side scoring little victories but neither ever winning decisively.
Iran’s crude exports reached 1.4 million barrels per day (bpd), the most since last July, when European sanctions took effect, according to two industry sources, and customs and shipping data compiled by Reuters.
While this is still down on the 2.2 million bpd Iran exported in 2011, it’s well up on the 900,000 bpd shipped out in September.
The gain in exports is likely to encourage Tehran in its belief that it can “tough out” European and US sanctions aimed at forcing it to open its nuclear program to international scrutiny.
But as Jerry the mouse often discovers, his successes against Tom the cat are short-lived.
Much of Iran’s success has been due to its ability to maintain shipments to two of its largest Asian customers, namely China and India.
India’s imports from Iran rose 29 percent to 276,000 bpd in December from November, and the South Asian nation bought an average of 315,000 bpd in 2012, down a mere 1.7 percent from 2011’s 320,000 bpd.
This seems an unconvincing effort from an erstwhile US and European ally to scale back its purchases from Iran, even though India had cut imports 19 percent in the first nine months of the fiscal and contract year that started in April.
Indian Oil Corp. bought more Iranian oil in December to honor its annual deal.
However, import volumes may drop by 10 to 15 percent in the coming contract year, according to sources, as India seeks to maintain its US waiver to import Iranian oil.
China’s imports from Iran rose to 593,400 bpd in December, the second-highest month in 2012 after June as shipping delays eased as Tehran added secondhand tankers to its fleet. In 2012, China’s imports from Iran fell 21 percent from 2011 to 438,448 bpd, which still makes Beijing the top buyer of Iranian crude.
China may reduce its purchases further in 2013, by up to 40,000 bpd, according to industry sources.
But it seems that both China and India are at best reluctant observers of Western sanctions, with both still willing to take Iranian crude and help overcome issues such as the European ban on its re-insurers, who dominate the global market, from covering vessels carrying Iranian cargoes.
Their reaction to the latest US sanction may prove instructive.
From Feb. 6, US law requires that funds being used to pay for Iranian oil must remain in a bank account in the purchasing country and can only be used for bilateral trade with Iran on goods not under sanctions. Any bank violating this measure runs the risk of being cut off from the US financial system, something no major bank would be able to countenance.
In theory, this will make it difficult, if not impossible, for Iran to be paid for oil.
However, it also doesn’t prevent Iran from shipping oil, so it’s quite possible the Iranians will continue to supply Asian customers while they try to work out ways around the new steps.
And they have a pretty good track record in getting round Western sanctions.
Iran has bought more tankers to get around insurance sanctions  and has also probably taken advantage of the murky nature of the physical oil market in Asia to move cargoes.
While Western sanctions are costing Iran about $ 3.4 billion a month, based on the loss of about 1 million bpd of exports and a Brent price around $ 115 a barrel, seemingly enough to cause economic harm, this is not enough to cause Tehran to rethink its nuclear strategy.
Oil markets are coping without about half of Iran’s potential exports, but only because demand in Europe remains weak and the US is enjoying increased shale output. The only thing that is clear is that this game is far from over.