Debt-stricken Greece is surviving on oil priced at a premium from trading houses Vitol and Glencore, who have stepped in as suppliers of last resort after sanctions forced Greece to halt imports from its main supplier Iran.
Greece has been forced to halt Iranian oil purchases because of EU financial sanctions ahead of an oil embargo in effect from July 1.
The timing could hardly have been worse for Athens, which had become dependent on Iranian oil because most oil firms and banks would not extend it credit for fear it would default on its debts.
Trading sources told Reuters that Vitol and Glencore, the world's No.1 and 2 oil traders, have been supplying the bulk of the needs of Greece's top refiner Hellenic in the last two months.
Between them, the two firms have given Greece about 300 million euros ($375 million) in open credit financing, trading sources estimate, allowing Athens to keep buying oil without payment guarantees from banks.
Glencore has given credit for about 200 million euros, Vitol about 100 million, the trade sources said.
That has allowed Greece to avoid a steep slump in oil refining and escape fuel shortages. But the rescue has come at a price because the trading houses are said by traders at rival companies to be charging a hefty risk premium.
Vitol and Glencore declined to comment on their roles in supplying Greece.
Hellenic also declined to comment.
"It is all very complicated with Greece. Every deal is separate from the other, for every cargo you have different terms," a trader at one of the two trading houses said.
Because of their deep pockets and their willingness to take risk, Vitol and Glencore are the only firms that have been able to keep large quantities of oil flowing to Greece.
"If I had to deliver to Greece now, I would be feeling very uncomfortable," said a dealer at a Russian trading house who does not supply Greece.
Referring to the risk that the two firms are taking, he added: "An operational hole of $100 million would have killed me. But I guess Glencore or Vitol can afford having it. After all, the Greeks will manage to repay somehow in the future."
State Iraqi and Saudi oil companies continue to supply small amounts of crude to Greece and some companies, including Shell, continue sporadic shipments.
Iran had been offering generous credit terms to sell its oil amid tightening sanctions, and was willing to overlook Greece's debt problems and sell oil via "open credit" — an industry term meaning payments for oil can be delayed for 60-180 days.
The open credit system is risky as neither party has the support of a bank's letter of credit in case of non-payment.
Last year, Greece turned to Iran as its main supplier despite pressure from Washington and Brussels to end such trade as part of a campaign against Tehran's nuclear program.
Other European Union countries, including Spain and Italy, are phasing out Iranian imports because of sanctions, but none became as reliant on Iran as Greece.
Greek refiners relied on Iran for more than half of its oil imports during some months last year. Hellenic accounts for around 70 percent of the country's refining capacity with three refineries processing around 310,000 barrels per day.
The Iranian flows to Greece dried up in March when EU banks refused to facilitate payments as a result of financial sanctions.
Then, Vitol and Glencore emerged as willing to enter open credit deals with Hellenic. Other firms shied away from making prolonged links, occasionally selling on a spot basis.
The trading houses are sourcing oil from Russia, Kazakhstan and Libya with Glencore supplying two tankers of Russian Urals crude, two Kazakh Caspian blend cargoes and one with Libyan crude a month.
Vitol is supplying one or two cargoes of Urals taking total monthly volumes of supplies by the two traders to about 150,000 barrels per day valued at about $500 million monthly covering over a half of Hellenic's crude needs.
"NOT FOR THE FAINT-HEARTED"
Traders estimated the potential premium Glencore and Vitol is likely to be charging at 50 cents a barrel or more, which would result in an additional payment of at least $2.2 million per month.
"It's not for the faint-hearted, given that European banks cancelled letters of credit a while ago," said a trader at another Swiss-based trading house. His firm tried to supply Hellenic but found it impossible to take out insurance on these deliveries.
Both Vitol and Glencore declined to say whether they would continue supplies if Greece defaults and leaves the eurozone.
Both traders have a long history of taking on risk in exchange for hefty premiums when supplying crisis and even war-stricken countries - including Libya last year.
Both Glencore and Vitol have been buying hard assets including refineries and some traders speculate they might be interested in acquiring Hellenic, partly state-owned and slated for privatization. The companies declined comment on that prospect.
Hellenic generates profits despite falling fuel demand in austerity-hit Greece.
That may not last indefinitely. With European leaders now openly speaking of the possibility that Greece might be forced out of the euro after an inconclusive election on May 6, the risk involved in extending credit lines to Athens is growing.
"Highly indebted deficit nations in the eurozone are burning oil and gas they cannot afford," Merrill Lynch said last week noting that Greece's oil demand has fallen 21 percent or 91,000 bpd from 2008 compared to a GDP contraction of 13 percent.
"We believe that a Greek euro exit will likely reduce domestic oil demand sharply, as it simply would become unaffordable in a new currency," it said.
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