Daily Management Review

China Is Iran's Largest Oil Buyer, And Tehran's Oil Trade Is Growing


China Is Iran's Largest Oil Buyer, And Tehran's Oil Trade Is Growing
China is importing record amounts of oil from Iran as the country increases production in defiance of the possibility of additional U.S. sanctions.
Current sanctions were put in place due to Iran's nuclear programme, and American politicians are looking to increase pressure following Hamas's attacks on Israel on October 7. Iran has historically supported Hamas, though Tehran has denied any role in the attacks.
Legislators in the United States are currently working on a bill that would impose restrictions on foreign refineries and ports that handle Iranian petroleum exports.
Key details about Iran and China's oil trade are as follows:
How much oil does China purchase from Iran?
According to shiptracking data from Vortexa, China, the largest crude importer in the world and Iran's top customer, purchased 1.05 million barrels per day (bpd) on average of Iranian oil in the first ten months of 2023. This is 60% more than the pre-sanction peaks that Chinese customs reported in 2017.
This year, imports increased as a result of Tehran's production increase and generous discounts.
According to Reuters surveys and OPEC estimates, Tehran's October output increased marginally to 3.17 million bpd, the most since Washington reimposed sanctions on Iran in 2018.
According to Vortexa statistics, China's imports from Iran are projected to have hit 1.45 million bpd in October, the highest monthly figure ever.
How does Iranian oil enter China?
Since December 2020, China's customs has not recorded any direct imports from Iran, with the exception of two shipments in December 2021 and January 2022.
The majority of Iranian oil that is imported into China is labelled as coming from Malaysia or other Middle Eastern nations.
An ageing fleet of tankers known as the "dark fleet" transports the oil; to avoid being discovered, these vessels usually turn off their transponders while loading at Iranian ports.
Other strategies employed by these vessels involve disguising their whereabouts and carrying out ship-to-ship (STS) operations at sites beyond approved transfer zones, occasionally during inclement weather, in order to mask their operations and allay concerns about possible contamination.
According to Vortexa and Kpler, these ships occasionally become trackable by satellites close to ports in Oman, the United Arab Emirates, and most notably Malaysia, a major transshipment hub, before unloading cargo primarily at ports in China's Shandong province.
China uses quotas to control the import of crude oil. When quotas were tight earlier this year, merchants mislabeled a few cargoes of Iranian heavy crude as bitumen mix, which spurred Chinese authorities to increase shipping inspections.
Which Chinese refiners purchase crude oil from Iran?
Once important Iranian oil buyers, Sinopec and PetroChina are massive state refiners that have made investments in Iranian oilfields. However, since late 2019, when U.S. President Donald Trump reinstated restrictions on Tehran's petroleum exports, they have not lifted Iranian oil.
The number of flows to China fell precipitously at first as a result of the sanctions, but as additional independent refiners joined the purchases, the volumes have increased.
Chinese dealers claim that Iranian oil is processed by the majority of the more than 40 independent Chinese refiners, also referred to as teapots. Teapots don't need to collaborate with Western businesses on technology and are not heavily exposed to the dollar-based global financial system. It is thought that Chinese money is used to pay for the majority of the transactions.
What makes independent refineries choose the oil from Iran?
Mostly due to the oil's affordable and high quality.
The primary export grade, Iranian Light, trades at a $13 per barrel discount to ICE Brent on a deliver-ex-ship basis in Shandong for delivery in December.
This is in contrast to the roughly $5 per barrel premium for comparable-quality Oman crude.
How does Beijing feel about trade?
China also purchases crude from Venezuela and Russia, both of which are subject to US sanctions. Beijing has always argued that its regular trade is entitled to respect and protection and has rejected unilateral penalties.
Nonetheless, China's last officially documented shipment of Iranian oil for state reserves arrived in early 2022, according to customs records.
What steps has the US government made to enforce the law?
Washington has imposed sanctions on more than 180 people and organisations since 2021 who are either connected to Iran's petrochemical and petroleum industries or to the transportation and laundering of illegal funds.
It has been determined that more than 40 vessels are the sanctioned entities' property that is prohibited.
The State Department told Reuters in October that the U.S. government also routinely interacts with other nations in an effort to adamantly dissuade them from acting in a way that would violate Iran's sanctions.