China imports record volumes of Iranian crude

  • Market: Crude oil
  • 21/06/23

China imported a record 1.34mn b/d of Iranian crude in May, a third higher than the previous month, according to Argus analysis of Chinese customs data.

China has long been a major buyer of Iranian crude and has taken almost all of Tehran's exports since Washington's unilateral exit from the Iran nuclear deal led to US sanctions being reimposed on Iran's key energy and banking sectors in 2018. May's figures appear to corroborate vessel tracking data showing a marked rise in Iranian crude exports in recent weeks and months.

Oil analytics firm Vortexa put Iran's total crude loadings at 1.33mn b/d in May, up from 1.05mn b/d in the fourth quarter of last year, and 781,000 b/d in the third quarter, while other tracking data point to exports above 1.5mn b/d last month. This could translate into a fresh record for Chinese imports of Iranian crude in June, given the more than 20-day sailing time between the two countries.

The collapse of the nuclear deal, otherwise known as the Joint Comprehensive Plan of Action (JCPOA), and the reimposition of sanctions denied Iran access to much of the global crude market, pushing its exports to well below 500,000 b/d from the second quarter of 2019. While most of Iran's traditional buyers in Europe and Asia-Pacific stopped shipments of Iranian crude and condensate, independent Chinese refiners around the country's Shandong province continued, and today take the bulk of Iran's crude exports, albeit for a hefty discount. Smaller volumes still head to fellow sanctioned allies Syria and Venezuela.

Iran's success in raising exports in recent months has allowed it to ramp up its crude output to multi-year highs. Argus estimated Iran's crude production at 2.78mn b/d in May, up around 200,000 b/d since the fourth quarter of 2022 and the highest monthly level since January 2019, although still around 1mn b/d below pre-sanctions output.

The IEA put Iranian output at closer to 2.9mn b/d in May, while Iran's oil minister Javad Owji said last month that production was above 3mn b/d.

Brinkmanship

Iranian officials have typically refrained from publicly issuing production or export data since the reimposition of sanctions in 2018 on the grounds that it would be "against the national interest". Tehran has not directly supplied a production figure to the Opec secretariat for years. But the latest export gains appear to have triggered a change in approach, with several key government figures now keen to talk up its successes.

"Some in the previous government said it would not be possible to export more than 300,000 b/d of oil," Iran's president Ebrahim Raisi said this week. "But within the early months of this government, it became clear that it is possible to not only sell more than 1mn b/d, but also receive the payment."

Government spokesman Ali Bahadori Jahromi said the "record-breaking" post-sanctions oil sales show that Tehran's efforts to "neutralize the sanctions" have been effective.

The rise in exports only partly explains Iran's recent output growth. An increase in domestic demand is also a factor, driven by the commissioning of a new 210,000 b/d crude distillation unit at the century-old Abadan refinery in March.

That Iran has managed to claw back a large part of its crude production is notable, given there has been no movement on sanctions relief. Efforts by US president Joe Biden's administration to revive the JCPOA have so far failed, while Iran has steadily advanced its nuclear activities. Biden pronounced the nuclear deal dead in a video that surfaced late last year, while the G7 summit in Japan last month mentioned the JCPOA only as a possible "reference" for future diplomacy with Tehran.

Although a flurry of new diplomatic activity between Iran, some regional Mideast Gulf countries and the EU has renewed hope that some kind of de-escalatory arrangement can be reached between Tehran and Washington, Iran's successes on the export front could put it in a stronger negotiating position than many would have expected just 12 months ago.

China's Iranian crude imports

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