Iran is diligently working to circumvent the US sanctions imposed on its ports by delivering oil shipments to Chinese ports through illegal means, such as shipping with opaque documentation, using tankers that turn off their lights, and changing the names of the shipments.
A report by Ahmed Fall Ould Deen reveals details of these operations, highlighting scenes from Shandong province in China where small refineries, semi-independent from the government and colloquially referred to as 'tea kettles,' play a crucial role in processing Iranian oil despite the sanctions.
Details of the Operations
The US Treasury Department indicates that China accounts for approximately 90% of Iranian oil exports, with 'tea kettle' refineries playing a key role in this procurement. These refineries operate outside the purview of state-owned Chinese energy companies and receive discounted Iranian oil, making them profitable in a market with limited margins.
The Wall Street Journal reported that these refineries have not only been unaffected by US sanctions but have also resisted previous efforts by the Chinese government to shut them down. However, Beijing has recognized the economic and strategic benefits these networks provide, prompting it to turn a blind eye.
Background & Context
The 'tea kettle' mechanism does not follow a direct route from Iran to China; instead, oil may be transferred from one ship to another at sea, with changes to the documentation of origin. The US Treasury confirmed that evasion methods include front companies in Asia and the Gulf, intermediaries, and a 'shadow fleet' that employs means to manipulate documents and ship identities.
When the shipment reaches Chinese refineries, its political nature changes. Crude oil, once unloaded, enters refining units and is transformed into gasoline or petrochemicals, making the question not about where the barrel came from, but rather what the new product is and which company will purchase it.
Impact & Consequences
The effectiveness of Iran's evasion of US sanctions lies in the fact that the Iranian tanker escaping sanctions does not require political recognition. It is sufficient to find a customer capable of refining, a destination able to pay, and a market that can absorb the final product.
Reuters reported that Iranian oil in China is often rebranded as coming from Malaysia or Indonesia, with independent refineries being the main buyers of discounted barrels that others avoid. However, the arrival of 'smuggled' oil in China does not resolve the economic and technical issues that Iranian oil may face.
Regional Significance
Shipping data indicates that less than half of the stranded Iranian oil successfully reaches China during peak sanctions, with the percentage ranging between 30% and 50%, while the majority remains stranded on tankers or stored at sea. This accumulation puts pressure on ports and pipelines, potentially leading to reduced production.
The challenges facing Iran are increasing, as the deterioration of infrastructure accelerates and operational costs rise, weakening the ability to resume exports later. Under these circumstances, US sanctions exert further pressure on the Iranian economy, necessitating new adaptation strategies.