Independent refining companies in China, which are among the largest importers of Iranian oil, continue to purchase Iranian crude despite increasing US pressures. However, these purchases are slowing down due to deteriorating local refining margins, according to trade sources.
The US blockade on Iranian oil shipments, which began on April 13, poses the biggest threat to China's purchases of Iranian oil. If these pressures continue, they are likely to impact shipments to China in the coming months.
Details of the Situation
In an effort to protect fuel supplies, Beijing has instructed independent refineries to maintain production levels or face consequences. Additionally, an exceptional allocation of oil import quotas outside the usual cycle has been designated, effectively encouraging the purchase of Iranian and Russian oil, which are the main sources of crude for small independent refineries.
Data from Fortecsa Analytics indicates that small independent refineries in China purchase about 90% of Iranian oil shipments, having imported a record level of 1.8 million barrels per day in March. However, Washington has warned of the possibility of imposing sanctions on buyers of Iranian crude and recently sanctioned the Hengli Petrochemical Refinery in Dalian for purchasing Iranian oil, a claim that Hengli has denied.
Context and Background
China is seeking to bolster its supplies of Iranian oil amid US pressures, as Iranian oil is a vital source for independent refineries. However, local refining margins have significantly deteriorated, with total local refining margins reaching -530 yuan (approximately $77.50) per metric ton, marking the lowest level in a year.
Tracking Iranian oil has become increasingly difficult, as ships use what is known as a “shadow fleet” to conceal their voyages. Data from Kepler showed that the supertanker Huangkayu, carrying two million barrels of Iranian oil, arrived at the Chinese port of Yantai after loading the shipment from Iran's Kharg Island.
Implications and Effects
Consulting firm Energy Aspects asserts that US sanctions could complicate refining operations, potentially prompting Asian petrochemical buyers to exercise caution. However, these sanctions are unlikely to significantly alter the purchasing patterns of Chinese refineries as long as Iranian supplies remain available.
Reports anticipate that three more ships laden with Iranian oil will arrive in Shandong this week, while nine additional tankers are scheduled to arrive between May 1 and May 8. Iranian oil has long been recorded as Malaysian or Indonesian in shipments to China, complicating tracking efforts.
Impact on the Arab Region
These developments affect global oil markets, as Arab countries strive to maintain oil price stability amid geopolitical tensions. Furthermore, China's continued purchase of Iranian oil could influence trade relations between Arab nations and Iran.
In conclusion, Chinese purchases of Iranian oil remain under pressure from US sanctions, but supplies are still available, making it challenging for Washington to significantly impact these trade relations.