China's Private Refiners Prepare for New US Sanctions on Iranian Oil

China's private oil refiners are readying for new US sanctions on Iranian exports by increasing purchases of obscured-origin cargoes. This strategy aims to ensure a continued flow of crude to China despite measures targeting foreign ports, vessels, and refineries knowingly engaging in the Iranian oil trade.

The US House of Representatives has passed stricter sanctions against Iran following an attack on Israel, with the goal of curbing Iran's oil exports. However, China, the largest buyer of Iranian oil, is expected to continue receiving shipments. Chinese 'teapot' refiners, primarily located in Shandong province, have adapted to previous sanctions by engaging in practices like ship-to-ship transfers to obscure the origin of Iranian oil, indicating their resilience to US sanctions.

Despite official data showing no imports of Iranian oil since mid-2022, China has reportedly imported an average of 1.2 million barrels a day of crude from Iran since the beginning of 2023. This highlights the challenges the US faces in fully enforcing sanctions against Iran.

Why this matters: The impending US sanctions on Iranian oil exports have significant implications for global oil markets and geopolitical tensions. China's continued imports of Iranian crude, facilitated by its private refiners, underscore the difficulties in effectively enforcing sanctions and the potential for ongoing friction between the US and China over this issue.

As the teapot refiners brace for increased scrutiny, they are likely to resort to tactics like ship-to-ship transfers around Malaysia, Singapore, or near Fujairah to obscure the oil's origin. Some refiners may temporarily pause operations as a precaution, while buyers seek better terms amidst rising obstacles for Iranian exporters. "Though US officials can track shipments, the extent of enforcement remains uncertain, impacting fuel prices in an election year," according to one of the summaries.

Key Takeaways

• China's private refiners increase purchases of obscured-origin Iranian oil to evade US sanctions.
• US House passes stricter sanctions on Iran, but China continues to import Iranian oil.
• China's 'teapot' refiners use tactics like ship-to-ship transfers to hide Iranian oil's origin.
• US faces challenges in fully enforcing sanctions, impacting global oil markets and US-China relations.
• Refiners may pause operations or seek better terms as obstacles rise for Iranian oil exporters.