Iran's daily oil exports in July could fall below half the average shipped in 2011 before tough new Western sanctions stemmed the flow.

Japan and South Korea, among Iran's top oil buyers, have halted all Iranian imports this month due to sanctions imposed by Brussels on Sunday that aim to cut Iran's oil revenues and force Tehran to curb its disputed nuclear programme.

Exports in July will fall to a maximum of 1.1 million barrels per day (bpd), said an industry source familiar with Iran's monthly shipping plans who declined to be named due to the sensitivity of the matter. Actual exports are likely to be less as top buyer China disputes freight costs with Iran's top tanker company, delaying the loading of cargoes set to flow east.

India could also reduce its July loadings as Iran struggles to find tankers of the size Indian refiners require due to port constraints. India is Iran's second largest customer.

Iran's exports have declined steadily this year from the 2.2 million bpd average in 2011 as its oil buyers cut imports to comply with US and European Union sanctions.

Iran was estimated to have shipped between 1.2 million and 1.3 million bpd in June, industry sources said last month.

July's cut translates into a loss of around $3.4 billion in monthly government revenue compared to a year ago, a major setback for Tehran as it struggles to contain spiralling consumers prices and mounting unemployment.

Although oil prices have fallen by around 20 per cent in the last four months as other producers led by Saudi Arabia boost supplies, the market remains on edge over a possible supply disruption in Iran. Brent crude futures, which traded above $101 on Thursday, has risen nearly 4 per cent this week due to Tehran's saber rattling following the imposition of EU's embargo against its oil trade.

'If you think it's early enough to say that the market is going to easily cushion the impact of losing Iranian supplies, then you are just being plain foolish,' said a Middle East-based trader with an oil major.

'With Iran, you always have to stay alert.'

As sales fall, Iran has been forced to store its unwanted crude on tankers in the Gulf. The country is expected to store at least 8.3 million barrels this month, double the amount the previous month, the source familiar with the shipping plans said.

Iran may need to cut back more of its estimated 2.95 million bpd crude output, already the lowest in nearly of a quarter century, as the nation runs out of onshore and offshore storage capacity. More than half of the ships owned by Iran's main oil shipper NITC are believed to already be storing crude.

The Islamic Republic is expected to load a maximum of 890,000 barrels per day for its top Asia buyers, the source said, down 40 per cent from the 1.48 million bpd taken during the same period last year.

China was scheduled to take a maximum of 492,000 bpd for July-loading Iranian crude, the source said. The final amount loaded will depend on how quickly top refiner Sinopec resolves its dispute with Iran's shipper NITC. India was expected to load at most 300,000 bpd, the source added.

Iran's number three buyer, Japan, will not import crude this month, but is expected to load around 98,000 bpd for delivery in mid-August, industry sources said.

Japanese buyers have delayed their purchases to avoid any risk of running foul of EU sanctions targeting insurance. Tokyo has agreed to step in and provide insurance cover of up to $7.6 billion for shipments to keep oil trade with Tehran going.

The EU oil embargo has stopped European insurers, who dominate the maritime sector, from offering cover on Iranian crude. Industry watchers say the EU step has proven to the hardest hitting measure in the West's arsenal of sanctions aimed at Iran.

China and India are relying on Iran to use its own tankers to deliver oil to them, making Tehran liable for the insurance.

South Korea has simply stopped importing Iran's oil for now.

In Europe, Turkey and Italy were the only countries which continue to import Iranian oil after the start of the EU embargo.

Turkey is now buying around 160,000 bpd of oil from Tehran, down about a fifth from last year's average. Italy was exempted from EU sanctions as it is owed about $1 billion by Iran and is receiving payments of around 20,000 bpd in oil.

South Africa is also continuing imports of oil from Iran after having won US sanctions waivers. It has almost halved imports to around 65,000 bpd in the past 6 months.

Earlier this week, Kenya emerged as the potential buyer of up to 80,000 bpd of Iranian oil but the country quickly cancelled the deal under pressure from Washington and Brussels. – Reuters