China Switches To Iranian Tankers To Import Iran's Oil Amid US Sanctions

Galtero Lara
Agosto 21, 2018

The Donald Trump administration has warned that it is prepared to slap sanctions on China should it refuse to cut shipments.

"The shift started very recently, and it was nearly a simultaneous call from both sides", said one source, a senior Beijing-based oil executive, who asked not to be identified as he is not allowed to speak publicly about commercial deals.

That's huge, because China is by far Iran's largest customer.

Traders said US sanctions against Iran were supporting prices.

The Total pullout is likely what prompted the Iranian Foreign Ministry to issue a statement urging the European Union to speed up its promised efforts to try to preserve the P5+1 nuclear deal in the absence of the US. Most EU companies have pulled out of Iran for fear of US sanctions and Tehran said France's Total had officially exited Iran's South Pars gas project. Chinese officials say CNPC will take over Total's share in the project, giving them even deeper control in the offshore venture.

The first round of sanctions, which included cutting off Iran and its trade partners from the USA, went into effect 7 August. Insurers, which are mainly USA - or European-based, have begun winding down their Iranian business to comply with the sanctions.

The sources said the state oil trader Zhuhai Zhenrong Corp and Sinopec Group, Asia's biggest refiner, had activated a clause in its long-term supply agreements with the National Iranian Oil Company (NIOC) that allows them to use NITC-operated tankers.

Cash on tap
Cash on tap

Iran will cover delivery costs and risks and handle insurance as the oil price under the long-term deals changed to a delivered ex-ship basis from prior free-on-board terms.

In July, all 17 tankers chartered to carry oil from Iran to China are operated by NITC, according to shipping data on Thomson Reuters Eikon. To compare, the previous month, Chinese companies operated 8 out of 19 tankers that shipped oil from Iran to China.

The tankers loaded about 23.8 million barrels of crude oil and condensate set for China in July, or about 767,000 barrels per day (bpd).

Washington on Monday offered 11 million barrels of high-sulfur, or sour, crude from its Strategic Petroleum Reserve (SPR) for delivery from October 1 to November 30.

In 2017, China imported an average of 623,000 bpd, according to customs data. A spokesperson with Nam Kwong Group, the parent of Zhenrong, declined to comment.

It was not immediately clear how Iran would provide insurance for the Chinese oil purchases, worth some $1.5 billion a month.

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