China’s purchases of Iranian oil have reached new highs in recent months, surpassing the 2017 high when the trade was not hampered by US sanctions, according to tanker monitoring data.
The world’s largest oil importer is increasing its imports amid discussions between Tehran and international powers to resurrect a 2015 nuclear agreement that would eliminate US sanctions on Iranian oil exports. In recent weeks, the discussions have become more heated.
The return of Iranian oil will help to relieve global supply constraints and bring down petroleum prices, which have risen to almost $100 per barrel since Russia’s invasion of Ukraine.
According to three tanker trackers, Chinese imports hit 700,000 barrels per day (bpd) in January, exceeding the 623,000 bpd peak reported by Chinese customs in 2017 before former US President Donald Trump reimposed sanctions on Iranian oil shipments in 2018.
Imports averaged 780,000 BPD in November-December, according to one tracker.
During the talks to resurrect the 2015 agreement, US President Joe Biden’s administration has opted not to impose the penalties against Chinese people and companies.
Traders say that if sanctions are lifted and Iran is permitted to resume oil exports, there would be less supply available to Tehran’s old consumers, such as Indian and European refiners.
They also believe that cheaper Iranian oil will continue to suffocate competing supplies from Brazil and West Africa.
China’s foreign ministry declined to comment when contacted by Reuters but underlined that Beijing opposes Washington’s long-arm authority and urged the US to lift unilateral penalties.
A request for a response from Iran’s oil ministry was not returned.
According to a representative for the US State Department, Washington is aware of China’s Iranian oil purchases and has raised the issue with Beijing.
“China is an important trading partner for Iran, so, of course, our discussions with China on how best to get a mutual return to compliance with the JCPOA include discussions of sanctions enforcement,” The nuclear pact, properly known as the Joint Comprehensive Plan of Action, was signed in 2015, according to the spokeswoman.
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EXPECTATIONS FROM TEAPOTS
Independent refiners, or “teapots,” are in the vanguard of China’s purchases, according to dealers, who are tempted by the lower costs, especially as their domestic refining margins have been squeezed under rigorous regulatory scrutiny.
“We’re seeing more plants taking Iranian oil, because they are cheaper, Referring to the independent refiners, a China-based executive participating in the sector told Reuters.
Iranian shipments were exchanged $5 a barrel below benchmark Brent in January, according to traders. They claimed the pricing were stable compared to late 2021, but they were more appealing in comparison to competitive supplies from Brazil, which was offered at a $7 premium above Brent.
Iran’s crude exports jumped to above 1 million barrels per day (bpd) in December, according to consulting firm Petro-Logistics, which follows oil movements.
“Iran’s oil exports are mostly going to China, often through convoluted routes and transshipments, with small volumes going to Syria each month,” said CEO Daniel Gerber.
Total Iranian oil shipments are expected to be about 800,000 bpd in January and 700,000 bpd in February, according to Petro-Logistics. However, another data analytics business, OilX, estimated Iranian shipments at above 1 million barrels per day in both January and February.
Chinese customs is expected to reveal statistics for January and February in March, after reporting its first formal import of Iranian oil in December.
If the 2015 nuclear agreement is resurrected, Iran is anticipated to shift sales away from Chinese independent refiners, but the Islamic republic is unlikely to turn off the tap on these clients, who have provided Iran with more than $20 billion in revenue over the previous two years.
“Iran may not have the full confidence how long the new deal could last. Chinese teapots have proven an essential outlet during the worst times and Iran would want to keep that channel open,” said the China-based oil sector executive.