Wed, Feb 10, 2021

China is still brimming with Iranian oil

IranSource by Brendon Hong

China Iran Middle East

Panamanian-flagged MT Freya and the Iranian-flagged MT Horse vessels are seen anchored in the waters off Pontianak, West Kalimantan province, Indonesia, January 24, 2021 in this photo taken by Antara Foto. Picture taken January 24, 2021. Antara Foto/via REUTERS

Even with occasionally reduced oil imports, Beijing has been Tehran’s lifeline to circumvent oil sanctions for years, providing a stable source of cash while nearly all countries dialed down their reliance on energy supplies from Iran. This was crucial when Iran’s oil output halved to just 2 million barrels per day (bpd) in 2020. Now, the crude-based relationship between Iran and China is stronger than ever, particularly since China is on overdrive to catch up with the United States economically, fueled by a steady stream of oil delivered from all corners of the world, including Iran.

In January, Indonesia seized two supertankers that were transferring oil at sea. One of the vessels, MT Horse, was Iranian-flagged and crewed by Iranian nationals. The other, MT Freya, was Panamanian, crewed by Chinese seamen, and managed by Shanghai Future Ship Management Co, a subsidiary of yet another Shanghai-based maritime firm called Chengda. The maritime sleight of hand was meant to disguise the crude’s provenance. China imports Iranian oil through direct means, ship transfers, and by mixing crude from Iran and other sources.

This seizure comes on the heels of revelations that Hamaca crude from Venezuela is doped with chemical additives in Malaysia and rebranded as “Singma Blend”—Singapore and Malaysia—with falsified paperwork.

Tehran and Caracas have found kinship as they face similar sanctions put in place by the US. Some Iranian crude follows the same path as the Hamaca crude that makes its way into Malaysia and then China, with its own rebranding process too. Malaysia was the recipient of around sixty thousand barrels from Iran each day for the first five months of 2020, even though Mahathir Mohamad, who was prime minister of Malaysia until last February, said his country could not trade with Iran due to sanctions.

Yet it does not appear that those performing the Malaysia Shuffle, if one can call it that, have bothered to cover their tracks. Malaysia’s actual oil production falls short of its exports to the tune of $500 million each month, according to data compiled by Bourse & Bazaar.

The Tehran-Caracas nexus goes further. With the collapse of Venezuela’s oil refining industry, Iran sent a flotilla of five oil tankers carrying about sixty million gallons of gasoline in exchange for Venezuelan gold in May 2020. The shipments continued, with the Iranian fleet size doubling by December 2020. These tankers hauled off Venezuelan crude after unloading the gasoline, a monthly magazine published by the China Association for Science and Technology reported. The destination? China.

China needs oil more than ever. Strict lockdown orders, citywide testing, and general public caution have flattened and then squashed the curve in China. In his 2020 year-end address, Chinese Communist Party leader Xi Jinping said, “We overcame the impact of the pandemic and have achieved great success in disease control as well as social and economic development.”

China’s struggle against what Xi called the “devil virus” and the subsequent pandemic miracle makes it the only major economy to log economic growth in 2020. With factories humming and workers of all stripes logging more hours than ever, China’s crude imports reached new stockpiling highs last year; up 7.3 percent compared to 2019, paired with consumption reaching 13 million bpd in May, nearly matching the 13.4 million bpd from one year prior. Part of this is explained by crude prices falling to the lowest point in decades due to pandemic-induced stagnation around the world. And, in general, China has been taking advantage of unmatched industrial recovery to fire all cylinders and close the economic gap with the US.

In December 2020, China imported 9.06 million barrels per day, a dip from November’s 11.04 million bpd—but only because refiners ran out of import quotas toward the end of the year. China is still thirsty for oil. Fresh quotas in early 2021 are 18 percent higher than a year ago.

This coincides with Iranian deputy oil minister Amir Hossein Zamaninia’s promise that Iran will raise its oil production to pre-sanctions levels by March to hit an output of 3.9-4 million bpd. The decision is likely based on expectations that US President Joe Biden will restore the Barack Obama-era nuclear deal that the Donald Trump administration withdrew from in 2018.

As long as China’s petroyuan provides a means to avoid US sanctions, Iran will keep loading tankers with crude and sending them eastward. Chinese refineries and petrochemical processors are piping in crude from all sources, including Iran.

 Brendon Hong is the pseudonym of a longtime contributor to The Daily Beast based in Hong Kong.