China Buys 700K Barrels of Iranian Oil Every Day, Violating US Sanctions

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by Tyler Durden
Wednesday, Mar 02, 2022 - 02:45 AM

Iran has been subjected to crippling oil-export sanctions for the last several years, but that hasn't stopped China, whose imports of Iranian oil have increased by the month (read: here), traders and ship-tracking firms told Reuters. Chinese buyers are ramping crude purchases at low prices as the international crude benchmark Brent soars and outweighs any risks of U.S. sanctions. 

Indeed, as Reuters notes, Chinese imports of Iranian crude continued to skyrocket this year despite the sanctions that, if enforced, would allow Washington to cut off those who violate them from the U.S. economy. But when the U.S. president is unlikely to wake up from his afternoon nap or refuse to be disturbed while eating ice cream and do anything to punish China for violating the terms of the embargo, Chinese importers exceeded 700,000 bpd for January, according to estimates by three tanker trackers, which exceeded the 623,000 bpd peak recorded by Chinese customs in 2017 before former President Trump reimposed sanctions in 2018 on Iranian oil exports. 

One tanker tracker said imports between November to December were on average 780,000 bpd. 

Much of the buying comes from independent Chinese refiners (otherwise known as "teapots"), who, traders said embraced Iran's cheaper crude as Brent prices soared last month from $77 to $91. Teapots paid a discount to market, transacting $5 a barrel below Brent. 

Consulting firm Petro-Logistics, which tracks oil flows, said Iran's total crude exports soared in December to over 1 million bpd, the highest in three years. 

"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.

Petro-Logistics expects total Iranian oil exports at 800,000 bpd in January and 700,000 bpd in February. Another tracker firm, OilX, said 1 million bpd could be seen for both January and February.

Iranian imports are increasing as Iranian and U.S. officials continue negotiating to restore the 2015 nuclear deal. If such a deal is reached in Vienna, lifting most international sanctions on Tehran would mean Iranian crude exports could flood the world and divert sales away from the Chinese teapots. 

The Ukrainian crisis likely gives Iran a stronger hand in the negotiations as Brent is driven above $100 a barrel on geopolitical concerns. Increasing political pressure on President Biden to tame inflation, more importantly, high gas prices at the pump ahead of midterms could make western politicians more receptive to a deal to squash oil prices. 

On Friday, a senior U.S. State Department official told WSJ there were only days left to close the remaining difference between Iran and the U.S. for a deal. 

"Final decisions have to be taken this week—either we have a deal or we do not," an official from one of the European countries at the talks said Monday. "The context of the current international crisis means the window of opportunity is closing."

In the meantime, it appears the U.S. will punish countries who violate its sanctions, though it won't dare touch China as it is too afraid of what an escalation could look like.