As Asian refiners have slashed imports of Iranian crude in favour of cheaper and higher quality alternatives, the world's fifth-largest oil exporter is scrambling to find alternative supply outlets for its own production.
"Iran is struggling to find buyers of its crude under its own term contracts…so marketing crude for a third party doesn't make sense for them right now," one industry source said.
Dragon Oil said it had no comment.
Under the swap agreement, Dragon ships the crude it produces from its offshore development in Turkmenistan to Iran's Bandar Neka, a port in the Caspian.
Dragon then receives crude produced by the Islamic republic at Kharg Island, an Iranian port in the Arab Gulf.
"Iran's state oil firm markets the crude on behalf of Dragon Oil," the first industry source said.
A second industry source said it was unclear if the deal would be renewed because the National Iranian Oil Company (NIOC), which is responsible for marketing the crude oil on behalf of Dragon, did not see it as beneficial to them.
Dragon moves about 80 percent of the crude it pumps from its 44,000 barrel per day (bpd) to 45,000 bpd field through this swap deal.
The remaining 20 percent is marketed through Baku in Azerbaijan.
Any move by the NIOC to back away from this deal will have an impact on the London and Dublin-listed firm, analysts said.
"They are always going to be dependent on an export route through Iran, so there would be volume risk plus margins are lower going west rather than south," said Peter Hutton from NCB Stockbrokers.
Dubai's state-owned Emirates National Oil Company (Enoc) owns 52 percent of Dragon Oil.
The United States is pushing for a fourth round of U.N. sanctions on Tehran over its refusal to halt sensitive atomic work the West suspects is aimed at making nuclear bombs, a charge Iran denies.
Although the latest draft proposals do not include sanctions targeting Iran's oil and gas sectors, companies are coming under increasing pressure to limit dealings with Iran. (Editing by Sue Thomas)
