Iran Aims to Boost Oil Sales in China Ahead of Potential Trump Comeback

Iran is currently facing a significant challenge with its oil exports to China, as the country grapples with a sharp decline in shipments. With rising tensions and the impending return of Donald Trump to Washington, Iran is eager to offload its oil reserves stored in Chinese ports. This article delves into the complexities of Iran’s oil export situation, particularly its dealings with China and the impact of U.S. sanctions.

Declining Oil Exports to China

Recent analysis from Kpler, a commodity intelligence firm that tracks oil tankers, indicates a troubling trend for Iran. Since October, Iran’s oil exports to China have been on a downward trajectory:

• Daily oil deliveries to China have fallen below 1.3 million barrels.
• This represents a decrease of 550,000 barrels compared to figures from October.

Compounding this issue, Iran’s unsold floating oil reserves have more than doubled, now estimated at approximately 20 million barrels. A source from the National Iranian Oil Company confirmed the extensive decline in oil exports, attributing the primary issues to logistical challenges.

“Iran hopes to resolve this issue in the coming months by purchasing more tankers,” the anonymous source stated. This is particularly crucial as new U.S. sanctions targeting oil tankers complicate the transportation of Iranian oil to East Asia.

Impact of U.S. Sanctions

Homayoon Falakshahi, a senior analyst at Kpler, noted that sanctions have created significant hurdles:

• Recent sanctions have affected 35 tankers that were covertly transporting Iranian oil.
• About half of these tankers have been blacklisted by the U.S.

These aging and uninsured vessels play a critical role in the oil trade by:

• Disabling their automatic identification systems.
• Transferring cargoes mid-sea to evade detection.
• Altering documents and oil branding through intermediaries.

According to Falakshahi, Iran’s main customers in China are small independent refineries, commonly referred to as “teapots.” However, these refineries are under pressure from Beijing to modernize or shut down due to inefficiencies and pollution concerns. At least three of these refineries have declared bankruptcy in recent months.

Oil Reserves Stored in China

In addition to its floating reserves, Iran is facing difficulties with oil stocks stored at onshore facilities in Chinese ports. Reports indicate that the Iranian government, with assistance from the Islamic Revolutionary Guard Corps (IRGC), is working to sell around $1 billion worth of oil reserves stockpiled at Dalian Port.

As of December 27, it was revealed that efforts are underway to also release oil stored at Zhoushan Port. Iranian officials are now investing in renting foreign, non-sanctioned oil tankers to obscure Iran’s involvement. The strategy involves:

• Loading oil onto these rented tankers.
• Moving them out of Chinese territorial waters.
• Executing mid-sea transfers to further obscure the oil’s origin.

The value of Iran’s oil reserves in Dalian Port is estimated at around $1 billion, roughly equivalent to 12 million barrels of oil.

Future Outlook for Iranian Oil Exports

Kpler’s data reveals a significant drop in both loading and unloading of Iranian oil during November and December. The logistics challenges and the shutdown of some Chinese teapot refineries, combined with Donald Trump’s anticipated return to the presidency, are contributing to this decline.

During Trump’s previous administration, sanctions drastically reduced Iran’s daily oil exports to below 350,000 barrels in 2019, down from a pre-sanction level of 2.5 million barrels daily. The maximum pressure policy led to a surge in Iran’s floating oil reserves, which reached 110 million barrels in 2021.

A significant portion of these reserves consisted of condensates, which are produced from gas fields. Halting condensate production would necessitate stopping gas production, a move that is not feasible for Iran.

Since the beginning of this year, the landscape of Iranian oil exports has shifted. By January, floating condensate reserves had dropped to zero for the first time since U.S. sanctions were imposed. However, since September, floating crude oil reserves have more than doubled, now reaching 20 million barrels due to reduced Chinese purchases, with some estimates suggesting the actual figure could be closer to 50 million barrels.

Conclusion

In the first 11 months of 2023, Iran managed to deliver an average of 56,000 barrels of oil per day to Syria, though these shipments have ceased. As of this month, President Masoud Pezeshkian’s government has set an ambitious target of exporting 1.85 million barrels per day in the upcoming year’s budget, amidst a backdrop of declining exports to China and logistical hurdles.