Turkiye Halk Bankasi AS, the Turkish bank that handles payments for Iranian oil, will stop processing transactions for supplies into Turkish refineries from July amid tightening Western sanctions against the Persian Gulf state. Tupras won’t be able to use the bank from the end of June unless it gets a U.S. waiver, a Tupras official said.
In our latest report we noted that Iranian crude ban poses the single most important risk to our earnings estimate. If Tupras stops buying Iranian crude (which covers roughly 40% of its needs) and uses Saudi/Urals/Iraqi oil instead, it will incur extra costs of US$ 2-3/bbl, equivalent to a US$ 1.0/bbl drop in core refining margin or TRY 320m (i.e. 24% of 2012F EBITDA). Given the risk related to Iran and our expectation for a significant drop in EBITDA (mainly due to the narrowing Brent-Iranian spread and lower inventory holding gains), we see valuation is skewed to the expensive side after the recent run-up in the share price.