China defies US sanctions by tapping Iran oil supplies

Although Beijing customs data show crude purchases from Iran are down month-on-month, China is still importing Tehran’s oil despite US measures designed to cut exports to “zero”.

Last week the Chinese received their first delivery of an Iranian oil cargo since the Trump administration in May scrapped exemptions on Iranian sanctions.

TankerTrackers, which monitors flows of oil through satellite signals and imagery, said the tanker Salina — a Suezmax vessel capable of carrying around 1m barrels — had docked in Jianzhou Bay, near Qingdao, on June 20, unloading its cargo over the following two days.

Oil sales are a crucial part of Iran’s efforts to resist the “maximum pressure” campaign of financial sanctions launched by the US after it pulled out of a landmark nuclear deal last year. This week, Washington imposed a new round of sanctions on the Islamic republic and Ayatollah Ali Khamenei, its supreme leader.

“The latest turn of the sanctions screw will keep tensions simmering,” said Stephen Brennock at London-based broker PVM.

The deliveries of Iranian oil to China come as Beijing wrestles with Washington over trade, with the world’s two largest economies fighting over tariffs, access to each other’s markets and the role of the US in extending sanction threats to countries that deal with its enemies. The US has also sanctioned oil exports from Venezuela, which China has provided with billions of dollars in oil-backed loans.

Tehran has threatened to breach uranium stock limits agreed in the nuclear accord unless it receives compensatory economic benefits from the remaining deal signatories — China, Russia and European powers.

Beijing’s position has been closely watched because of its status as a big buyer of Iranian oil. It is also important because European efforts to do business with Iran have been hobbled by companies’ reluctance to risk retribution from the US.

Iran’s crude and oil condensate exports, which peaked at 2.8m barrels a day in April 2018, fell to around 1m b/d between November last year and April 2019 even though big buyers of Iranian crude — such as China and India — were given sanctions exemptions.

After the removal of these waivers, energy consultancy FGE expects this figure to drop below 500,000 b/d this month. China would account for about 200,000 b/d, it estimates.

Based on tankers we have been tracking we expect China to take more Iranian oil in the coming days

Samir Madani, TankerTrackers
A regime insider told the Financial Times that sanctions had caused a significant drop in Iranian oil sales, the lifeblood of the country’s economy, but the volume of exports was still far higher than revealed by public figures.

“We still have many ways to sell crude. One may be surprised to hear that we even sell crude to some European refineries by rerouting and at higher costs for us,” he said, without specifying any particular trades.

Iman Nasseri at FGE said: “Iran is moving towards policies that may help them compensate for the lost revenue.” This includes removing tax exemptions for some sectors, selling government assets and cutting fuel subsidies.

However, Mr Nasseri emphasised that a large part of China’s imports would be compensation for their investment in upstream oil developments in Iran, so would not yield a big revenue boost for the economy.

An Iranian oil businessman said the Islamic republic was confident that China would buy Iranian crude even if it chose to do so quietly.

The Salina had loaded oil on Kharg Island on approximately May 28 — weeks after the US had removed the waivers, according to Samir Madani, co-founder of TankerTrackers, which provided satellite images of the vessel provided to them by Planet Labs, a satellite imagery company.

“This is the first Iranian tanker that has delivered crude oil that had departed Iran after the US removed the waivers in early May, with the exception of oil Iran has been sending to Syria,” Mr Madani said. “Based on tankers we have been tracking we expect China to take more Iranian oil in the coming days.”

A separate Iranian supertanker with a capacity of 2m barrels looked like it would dock in the Chinese province of Tianjin in the next 24 hours, Mr Madani added.

Chinese customs data showed Iranian supplies to China fell to 255,065 b/d in May, from 792,380 b/d in April and a 2018 average of 586,241 b/d. Saudi Arabia and Iraq have vied to replace Iranian barrels. The US has also stepped in to make up the shortfall.

Bijan Namdar Zanganeh, Iran’s oil minister, said this week that reports that showed a big drop in the country’s crude exports were “sheer lies”.

“I am not going to disclose any figures because that would not benefit us,” Mr Zanganeh told the Fars news agency on Monday.

The US state department did not immediately return a request for comment.