Caixin
May 29, 2019 07:10 PM
BUSINESS & TECH

China’s Iranian Oil Imports Surged Before U.S. Sanctions Returned

Crude oil is unloaded at Zhoushan, East China's Zhejiang province in February 2018. Photo: VCG
Crude oil is unloaded at Zhoushan, East China's Zhejiang province in February 2018. Photo: VCG

China’s inflows of Iranian crude oil surged to a five-year high in April as the world’s biggest oil importer gorged itself ahead of the return of U.S. sanctions against the Middle Eastern country earlier this month.

Oil imports from Iran hit 3.24 million tons in the month of April, up 41% year-on-year, according to data from China’s General Administration of Customs.

The surge from Iran came ahead of the resumption of U.S. sanctions against the country’s oil industry, with the aim of choking its exports to zero. After introducing sanctions against Iran, Washington announced it would allow China and seven other nations waivers to continue importing Iranian oil until May 2. The U.S. government surprised many at the beginning of April by announcing that the waivers would not be extended.

While China is Iran’s biggest customer, the dependence is not mutual. Iran was China’s seventh biggest source of crude oil imports last year, making up 6% of the total. While Beijing had talked tough about not being cowed by U.S. sanctions, Chinese buyers nevertheless looked for alternative sources, with Saudi Arabia, Russia and the United Arab Emirates all increasing their production as a direct result of the sanctions threat, according to S&P Global Platts.

Despite last month’s Iranian surge, China’s refiners should still be able to adapt their intake to increase their supply from other areas, said Dexter Wang, the Asia lead of oil market engagement at S&P Global Platts. But with the 11 countries that make up the Organization of the Petroleum Exporting Countries (OPEC) limiting their production for the first half of 2019, China may increasingly turn to producers in West Africa and Latin America, which is bound to push up prices, Wang said.

Yet Chinese buyers are not turning off the tap of Iranian oil imports completely, at least so far. Incomplete S&P Global statistics suggest that four Iranian crude oil tankers have arrived in China since May, carrying around 1.25 million tons.

Saudi Arabia continued to outpace its oil-producing rival Russia as China’s biggest crude oil supplier last month, with 6.3 million tons, up a hefty 43% year-on-year. Saudi’s rise appears to be linked to the kingdom’s diplomatic charm offensive over the last half year as its leaders look to tap China’s burgeoning downstream petrochemicals market. China’s total oil imports for the month hit 43.74 million tons, up 11% year-on year, according to Reuters calculations.

A total of 477,700 tons of U.S. crude oil entered Chinese ports last month, after zero imports in March and January. While crude is not on China’s list of tariffs on U.S. products, customers have remained wary of being caught out by a change of policy.

While China’s imports of U.S. oil more than doubled year-on-year to 12.14 million tons in the first nine months of 2018, they fell to 138,000 tons in November, before dropping off completely for the rest of the year. Last month’s resumption appears to be related to optimism that the countries were reaching the end of their trade dispute.

Contact reporter David Kirton (davidkirton@caixin.com)

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