Iran is secretly shipping record volumes of oil to China and looking for buyers in Asia

Six oil industry sources and Refinitiv data reported that Iran has secretly shipped record quantities of crude oil to China, its largest oil buyer in recent months, and at the same time, Indian state refiners have added quantities of Iranian oil to their annual import plans, presumably.

The United States will soon ease the sanctions imposed on the OPEC producer.

US President Joe Biden is seeking to revive talks with Iran over the nuclear deal that former President Donald Trump withdrew from in 2018, although harsh economic sanctions remain in place and Tehran insists they be lifted before negotiations resume.

The sources said that the National Iranian Oil Company began communicating with customers in various parts of Asia since Biden took office, to assess the potential demand for its oil. 

The sources asked not to reveal her identities due to the sensitivity of the matter.

Sanctions have led to a rapid decline in Iranian exports to China, India, Japan and South Korea since late 2018. Sanctions and production cuts decided by OPEC + producers have reduced the supply of high-sulfur Middle Eastern oil in Asia, its largest global market.

Asia imports more than half of its crude oil from the Middle East.

A source at an Indian refining company said, “They addressed us and said that they hope in the near future to resume oil supplies, so we said “Inshallah”.

The return of Iranian supplies to India, the third largest importer of crude in the world, is likely to reduce the demand for immediate shipments, which increased in recent times after Iraq cut supplies and Kuwait reduced the terms of some contracts.

A government official said India, which has been affected by the recent global rise in crude oil prices, expects Iranian supplies to return to the market within three or four months.

Another official at a refining company said that his company had received from National Iranian Oil Company officials indicating that a formal agreement on crude oil supplies would be signed after the Iranian elections next June. 

The Iranian company has already reached out to other customers in Asia.

“Recently, the National Iranian Oil Company contacted us to ask us about the demand,” said a trader at a refinery in East Asia. 

It seems that Iran is preparing to return to the market”.

Another source in the refining sector said that the talks were in a “very preliminary” stage and that the Iranian establishment wanted to know whether the company would resume buying Iranian oil.

In contrast to India, China has not completely stopped importing oil from Iran.

Refinitiv Oil Research reported that Iran had shipped about 17.8 million tons (306 thousand barrels per day) of crude to China over the past 14 months, and that shipments reached record levels in January and February.

Of these quantities, about 75 percent of the imports were “indirect” described as oil from the Sultanate of Oman, the United Arab Emirates, or Malaysia.

China entered mainly from ports in the eastern province of Shandong, where most of the independent refiners in China are located, or from Ingkou port in the region Liaoning in the northeast.

As for the remaining 25 percent of imports, Refinitiv said it was described as official purchases of China’s strategic petroleum reserve, as Beijing maintains small-scale purchases despite US sanctions.

“Quantities began to rise from the fourth quarter in 2020, as Shandong was the top recipient of crude, which indicates that the primary consumer has independent refineries,” said Emma Lee, an analyst for refinitiv crude oil flows.

The tankers carrying Iranian oil usually switch off their locators upon loading to avoid detection, and then it becomes possible to track them again by satellites near ports in the Sultanate of Oman, the UAE and Iraq. 

Some tankers would transfer part of their cargo to other ships near Singapore and Malaysia before sailing to China.

Reuters was unable to identify the ultimate buyers of these shipments.

Without commenting directly on the oil deals, the Chinese Foreign Ministry spokesman’s office said, “Iran is a friendly country to China and the two countries have regular contacts and cooperation. 

And cooperation between China and Iran within the framework of international laws is right, legitimate, and deserves respect and protection”.

The National Iranian Oil Company declined to comment”.

When the unjust US sanctions are lifted, Iran will be able to sell its oil to any country, and we assure that many contracts will be signed,” an oil ministry official said.

The Geneva-based tanker tracking company Petrologystics said that the volume of Iranian oil loads in January exceeded 600,000 barrels per day for the first time since May 2019, in an indication that the end of Donald Trump’s term may change buyers’ behavior.

Data from Refinitiv and Chinese Customs showed that indirect shipments that arrived in February, including those waiting to be unloaded in Chinese ports, amounted to nearly 850,000 barrels per day, exceeding today’s record level recorded in April 2019 of 790,000 barrels per day.

On Sunday, Chinese customs data showed that crude oil imports rose at an annual rate of 4 percent in the first two months of this year. 

China Customs will publish details of imports from each country this month.

An independent Chinese trader familiar with some of the deals said, “Iranian crude began to enter Shandong in late 2019… starting with some refiners that had no cash and used to refine the oil first before paying for the shipment”.

The trader explained that most of these deals were settled in the Chinese currency or the euro to circumvent the US sanctions.

Traders said that the record imports affected the prices of competing medium and heavy materials from other producers in the Middle East.

Another source said, “Iran has surfaced again, although it does not seem that the sanctions will be lifted soon”.