China’s oil trade with Iran faces a setback as Tehran withholds shipments and seeks elevated prices, impacting the world’s leading crude importer.
China’s oil trade with Iran faces a setback as Tehran withholds shipments and seeks elevated prices, impacting the world’s leading crude importer. The move, seen as a potential “default,” could have repercussions on global prices and squeeze profits for Chinese refiners.
The cutback in Iranian oil, constituting around 10% of China’s crude imports, reached a peak in October but now faces a halt. This development may have been triggered by the October U.S. waiver on sanctions of Venezuelan oil, redirecting shipments to the U.S. and India, subsequently raising prices for China.
The National Iranian Oil Co, China’s commerce ministry, and the U.S. Treasury Department have not yet commented on the situation.
Reports suggest that Iranian sellers informed Chinese buyers of narrowed discounts for December and January deliveries of Iranian Light crude, leading to a stalemate in negotiations. The discounts, which were around $10 a barrel in November, have now been reduced to $5-$6 a barrel below dated Brent.
The decision to hike prices appears to have originated from Tehran, causing a standoff between Chinese buyers and Iranian suppliers. The extent of Iran’s cutbacks to China remains unclear, and the situation is being closely monitored by industry experts.
China, a major buyer of discounted oil from sanctioned producers like Iran, Venezuela, and Russia, is now facing challenges in negotiations. Chinese refiners, especially smaller independent ones known as “teapots,” have been crucial clients for Tehran since 2019.
While at least one Chinese refiner has accepted higher prices, others are struggling to find a resolution. The ongoing tension over prices has resulted in a decline in Iran’s overall exports, with China’s imports falling to about 1.18 million barrels per day in December from a record 1.53 million bpd in October.
As the situation unfolds, the global oil market watches closely, anticipating potential impacts on prices and trade dynamics between China and Iran.