China Takes More Iranian Oil, Intensifying Sanctions Challenge
China has taken its second Iranian cargo of crude oil after US waivers expired in early May, further defying sanctions on Iran’s oil exports. The HORSE, a VLCC owned by the National Iranian Tanker Company (NITC) discharged its oil at Tianjin port in northern China, data provided by market intelligence firm Kpler shows. The crude could be destined to Sinopec’s Tianjin refinery. This comes ten days after Iran’s first shipment of oil to the CNPC-operated Jinxi refinery, previously reported by Bourse & Bazaar.
Senior analyst Homayoun Falakhsahi shared Kpler’s analysis: “The HORSE arrived at Tianjin on 29 May and discharged 2.12 million barrels of crude oil it had loaded from Iran’s Kharg Island on May 6th. After its departure from Kharg the following day, the cargo went offline for a few weeks before reappearing passing Singapore on its way towards China.”
In the past, HORSE has delivered crude and condensate to refineries in China and India. The tanker’s latest voyage provides further confirmation that China has restarted importing Iranian oil after a brief pause following the expiration of US waivers. Due to their significant exposure to the US financial system, state oil companies CNPC and Sinopec had initially ceased importing Iranian oil in May, citing the risk of sanctions penalties.
China, traditionally Iran’s largest oil customer, holds the key to the future of the country’s oil exports. Under the 6-month waiver period, China imported 600 kbd of crude and condensate on average from Iran, 43 percent of the country’s oil exports in the period.
In the run-up to the revocation of the waivers, China’s imports from Iran reached an all-time high of 913 kbd in April before decreasing to 299 kbd in May, when the final vessels to have departed Iran before the waiver revocation arrived in port. Against the backdrop of the trade war with the US, Beijing now appears to be undermining Washington’s goal of bringing Iran’s oil exports down to zero. Kpler data suggests that Chinese imports in June currently total 186 kbd, including two cargoes that left Iran before May 2nd.
The resumed imports reflect state policy. “The fact that state-owned CNPC and possibly Sinopec have restarted taking Iran’s oil indicates Beijing has given the green light to do so,” said Falakshahi. China has an interest in receiving Iranian oil not just for its energy security, but also because of outstanding debts owed by Iran. Around 100 kbd of Iran’s oil to China is used by the National Iranian Oil Company in repayment of costs and remuneration for Chinese investment in the country’s upstream oil and gas sector. In the last decade, CNPC and Sinopec invested a total of $3.8 billion in the Azadegan North and Yadavaran oil fields respectively, two of Iran’s West Karun projects.
Since the revocation of US sanctions waivers, Iran has struggled to find a home for its oil. Iranian oil minister Bijan Zanganeh has said that the oil export situation is much worse than during the Iran-Iraq War, noting, “We can’t sell our oil under Iran’s name”. Shipments of oil have slumped from 1.32 mbd in April to 984 kbd in May and 515 kbd in June.
However, as much as 75 percent of these exports could reflect Iran’s recourse to floating storage as wells continue to pump more oil than buyers are willing to take. Aside from China, the other traditional buyers of Iranian oil—India, Turkey, Japan and South Korea—have fully halted their imports so far, though India says it is considering importing Iranian oil again. Iran will be hoping it’s other customers are inspired to follow China’s lead.