China Takes More Iranian Oil, Intensifying Sanctions Challenge

China has taken its second Iranian cargo of crude oil after US waivers expired in early May, further defying sanctions on Iran’s oil exports. The HORSE, a VLCC owned by the National Iranian Tanker Company (NITC) discharged its oil at Tianjin port in northern China, data provided by market intelligence firm Kpler shows. The crude could be destined to Sinopec’s Tianjin refinery. This comes ten days after Iran’s first shipment of oil to the CNPC-operated Jinxi refinery, previously reported by Bourse & Bazaar.  

Senior analyst Homayoun Falakhsahi shared Kpler’s analysis: “The HORSE arrived at Tianjin on 29 May and discharged 2.12 million barrels of crude oil it had loaded from Iran’s Kharg Island on May 6th. After its departure from Kharg the following day, the cargo went offline for a few weeks before reappearing passing Singapore on its way towards China.”

In the past, HORSE has delivered crude and condensate to refineries in China and India. The tanker’s latest voyage provides further confirmation that China has restarted importing Iranian oil after a brief pause following the expiration of US waivers. Due to their significant exposure to the US financial system, state oil companies CNPC and Sinopec had initially ceased importing Iranian oil in May, citing the risk of sanctions penalties.  

China, traditionally Iran’s largest oil customer, holds the key to the future of the country’s oil exports. Under the 6-month waiver period, China imported 600 kbd of crude and condensate on average from Iran, 43 percent of the country’s oil exports in the period.

In the run-up to the revocation of the waivers, China’s imports from Iran reached an all-time high of 913 kbd in April before decreasing to 299 kbd in May, when the final vessels to have departed Iran before the waiver revocation arrived in port. Against the backdrop of the trade war with the US, Beijing now appears to be undermining Washington’s goal of bringing Iran’s oil exports down to zero. Kpler data suggests that Chinese imports in June currently total 186 kbd, including two cargoes that left Iran before May 2nd.

The resumed imports reflect state policy. “The fact that state-owned CNPC and possibly Sinopec have restarted taking Iran’s oil indicates Beijing has given the green light to do so,” said Falakshahi. China has an interest in receiving Iranian oil not just for its energy security, but also because of outstanding debts owed by Iran. Around 100 kbd of Iran’s oil to China is used by the National Iranian Oil Company in repayment of costs and remuneration for Chinese investment in the country’s upstream oil and gas sector. In the last decade, CNPC and Sinopec invested a total of $3.8 billion in the Azadegan North and Yadavaran oil fields respectively, two of Iran’s West Karun projects.

Since the revocation of US sanctions waivers, Iran has struggled to find a home for its oil. Iranian oil minister Bijan Zanganeh has said that the oil export situation is much worse than during the Iran-Iraq War, noting, “We can’t sell our oil under Iran’s name”. Shipments of oil have slumped from 1.32 mbd in April to 984 kbd in May and 515 kbd in June.

However, as much as 75 percent of these exports could reflect Iran’s recourse to floating storage as wells continue to pump more oil than buyers are willing to take. Aside from China, the other traditional buyers of Iranian oil—India, Turkey, Japan and South Korea—have fully halted their imports so far, though India says it is considering importing Iranian oil again. Iran will be hoping it’s other customers are inspired to follow China’s lead.

Photo: Shana.ir

Iran Completes Delivery of First Chinese Oil Purchase Since May

A tanker owned by the National Iranian Tanker Company (NITC) has delivered oil to the Jinxi Refining and Chemical Complex in China, marking the first confirmed delivery of Iranian crude purchased after the Trump administration’s revocation of waivers permitting the sale of Iranian oil on May 2. 

Analysis provided by TankerTrackers.com shows that the medium-sized Suezmax vessel, named SALINA, departed from Iran’s Kharg Island terminal on May 24. SALINA loaded approximately one million barrels of Iranian oil before departing on May 28.

A few weeks later, on June 20, the vessel arrived at the Jinxi Refinery, located near the Port of Jinzhou, near Beijing. Notably, Jinxi is owned and operated by PetroChina, which is affiliated to China National Petroleum Corporation (CNPC), a long-time buyer of Iranian oil and the parent company of Bank of Kunlun, the financial institution that has been at the heart of China-Iran trade for the last decade.

Iran has been delivering significant volumes of crude oil into bonded storage in China over the last year, selling that oil to China in subsequent months. CNPC’s nearby storage facility—part of China’s Strategic Petroleum Reserve—can hold 19 million barrels. But in the absence of waivers, the storage of Iranian oil would still contravene US sanctions, making it likely that the delivered oil was taken by CNPC as a purchase.

SALINA’s journey serves to confirm earlier reports that China had resumed purchasing Iranian petroleum products, including crude oil and liquid petroleum gas, despite the fact that such purchases would run afoul of US sanctions. Several other tankers are expected to arrive in China in the coming weeks. 

The central role of state-owned CNPC, China’s second largest energy conglomerate, suggests that China has resumed purchases of Iranian oil as a matter of government policy. During a visit to Beijing in May, Iranian foreign minister Javad Zarif was reassured by his Chinese counterpart, Wang Yi, that China would continue to support Iran, so long as Iran remained in compliance with the Joint Comprehensive Plan of Action (JCPOA) nuclear deal. However, Chinese and Iranian officials continue to deny that any purchases have been made since May, preferring to maintain ambiguity over the exports. 

The Chinese General Administration of Customs declared USD 585 million in imports of Iranian petroleum products in May, down sharply from USD 1.6 billion in April. But imports are expected to rebound in June, based on the significant number of tankers that remain en route to Chinese ports.

Photo: Justo Prieto

China Restarts Purchases of Iranian Oil, Bucking Trump’s Sanctions

On the same day that Iranian foreign minister Javad Zarif traveled to Beijing for talks on "regional and international issues,” the Chinese oil tanker PACIFIC BRAVO began traveling eastward, having loaded approximately 2 million barrels of Iranian oil from the Soroosh and Kharg terminals in the Persian Gulf over the past few days, according to analysis provided by TankerTrackers.com.

PACIFIC BRAVO is currently reporting its destination as Indonesia, but the tanker was recently acquired by Bank of Kunlun, a financial institution that is owned by the Chinese state oil company CNPC. TankerTrackers.com believes China is the ultimate destination for the oil on board.

PACIFIC BRAVO is the first major tanker to load Iranian crude after the Trump administration revoked waivers permitting the purchases by eight of Iran’s oil customers. The revocation of the waivers, which sent shockwaves through the global oil market, was a major escalation of Trump’s “maximum pressure” campaign on Iran.

The purchase of Iranian oil in the absence of a waiver exposes the companies involved in the transaction—including the tanker operator, refinery customer, and bank—to possible designation by the U.S. Treasury Department, threatening the links these companies may maintain with the U.S. financial system.

Bank of Kunlun has long been the financial institution at heart of China-Iran bilateral trade—a role for which the company was sanctioned during the Obama administration. Despite already being designated, Bank of Kunlun ceased its Iran-related activities in early May when the oil waivers were revoked. PACIFIC BRAVO’s moves point to a change in policy.

China-Iran trade slowed dramatically after the reimposition of U.S. secondary sanctions in November, suggesting the Chinese government had chosen to subordinate its economic relations with Iran to the much more important issue of its ongoing trade negotiations with the United States. But these negotiations have since broken down. This week, President Trump announced plans to impose tariffs on a further $300 billion in Chinese imports in addition to punitive measures against Chinese telecommunications giant Huawei, which has been targeted in part for its alleged violations of Iran sanctions.

These announcements stoked anger in China, which has vowed to fight back. Last week, foreign ministry spokesman Geng Shuang told reporters that China “resolutely opposes” unilateral sanctions on Iran. But until now, there had been little evidence that the Chinese government was encouraging its companies to ignore or evade U.S. sanctions in the interest of maintaining trade with Iran. While Chinese multinationals will likely remain wary of trading with Iran due to the risks posed to their increasingly global businesses, China’s apparent decision to use state-enterprises to purchase at least some Iranian oil represents a direct and significant challenge to U.S. sanctions. Earlier this week, Trump trade advisor Peter Navarro singled out China’s sanctionable activities in Iran’s metals industry in a Financial Times op-ed. With this kind of messaging, the Trump administration has made it impossible for China to keep the trade war separate from its disagreements with the United States over Iran sanctions.

For Iran, China’s decision to continue to purchase at least some Iranian oil could prove a vital lifeline as it struggles to withstand the Trump administration’s “maximum pressure” sanctions campaign. The failure of Europe, China, and Russia—the remaining parties of the Iran nuclear deal—led Iran to announce last week that it would begin to reduce its compliance with parts of the Joint Comprehensive Plan of Action (JCPOA) in 60 days.

Iran’s announcement greatly concerned European officials who have urged continued compliance with nuclear commitments under the JCPOA. In private, European officials acknowledge that the decision by the Trump administration to revoke the oil waivers was a significant escalation to which Iran was compelled to respond. Noting that economic pressures are fueling political opposition to the JCPOA in Tehran, European officials have been urging Chinese and Russian counterparts to do more to support bilateral economic ties with Iran. Dispatching PACIFIC BRAVO may be just the first step.

Photo: IRNA

Sanctions Pressure Spurs Debate on Iran’s OPEC Membership

This article was originally published in Persian in Hamshahri Newspaper.

Today, the 24th edition of the Tehran International Oil and Gas Exhibition opens. Tomorrow, the U.S. waivers permitting the purchase of Iranian oil will be revoked. In 2016, the year when the JCPOA was implemented, around 600 foreign companies came to Tehran to participate in the oil exhibition. This year, just 65 foreign companies are taking part.

Mohammed Barkindo, the Secretary General of the Organization of the Petroleum Exporting Countries (OPEC), will arrive in Tehran tomorrow to visit the oil exhibition. Iran is one of the five founding members of OPEC, which is set to mark its 60 year anniversary. Despite this long history, the extraordinary challenges facing Iran’s oil industry have spurred industry leaders to debate three scenarios regarding Iran’s membership in OPEC. 

In the first scenario, Iran would suspend its membership in OPEC until the oil sanctions are lifted. In the second scenario, Iran would announce its departure from OPEC. In the third scenario, Iran would remain a member of OPEC and strive to use its influence within the organization to address the new challenges. These scenarios have yet to be formally deliberated by government officials, but reflect a growing debate among key figures in the oil industry.

Should Iran suspend its membership in OPEC, the remaining members will likely face pressure from Saudi Arabia and the United Arab Emirates to abolish the membership of those countries which have suspended their participation for more than six months. What would be the next step? Would it not be a political failure for Iran to be ejected from an organization of which it is a founding member? Clearly, suspension of membership in OPEC is an unacceptable scenario.

There is no doubt that given the present oil embargo on Iran, Iranian officials will have limited influence on OPEC decisions beyond expressing expert opinions. It will obviously be very difficult for Bijan Namdar Zanganeh, Iran’s oil minister, to attend OPEC meetings for this reason. As a member of OPEC, the number of barrels produced and exported is determined by the consensus of the cartel, so Iran would presumably need to follow targets on which it has had limited input. Hard days await Iran’s oil minister in Vienna. But what would Iran gain by leaving OPEC? Such a move would be a loud political protest against Saudi Arabia and the UAE, which have taken practical steps to weaken Iran’s oil industry. But afterwards, will those rivals not be able to more easily pursue their energy politics, and use OPEC to further advance the isolation of Iran?

The sober, resolute, and reasonable approach would be for Iran to maintain its membership in the most influential organization of the developing world. Iran should remain a member of OPEC to ensure it can continue to engage with global media and influence public opinion on energy matters. It is true that Iran will be unable to meaningfully influence OPEC’s decisions in the near future, but the country should still demonstrate a resolute approach to unprecedented pressures in the energy market. Participating in OPEC meetings provides an important opportunity to remain close to future decisions. Any effort to isolate Iran would reflect the strategy of Saudi Arabia, the UAE, and their bullying partner, the United States. During OPEC meetings and on the sidelines, Iran’s oil minister can expose the cynical intentions of some members to harm the interests of the Iranian people. OPEC, aside from its role advancing the interests of oil producing states, gives Iran a platform to be heard. Iran should not give away this platform. It should not cede the table to others.

Photo: IRNA

As Trump Goes Nuclear On Iranian Oil, Europe Must Match His Brinkmanship

This article was originally published in LobeLog.

In the view of veteran observers of the oil industry, Trump has “gone nuclear.” Speaking during a background briefing on Tuesday, a senior state department official announced that the the Trump administration wants to completely eliminate imports of Iranian oil by its current customers. The official told journalists that, during a tour of countries that has already begun with a visit to Japan, U.S. officials will be “requesting that their oil imports go to zero, without question.”

Until recently, there had been an expectation that the Trump administration would issue significant reduction exceptions as was the case under the Obama administration, allowing countries to sustain some level of imports from Iran if significant reductions take place. Indeed, the guidance issued by the U.S. Treasury on May 8 following Trump’s withdrawal from the Joint Comprehensive Plan of Action, made specific reference to significant reduction exceptions as part of the reapplication of oil sanctions. These exceptions were to be devised following “the Secretary of State, in consultation with the Secretary of the Treasury, the Secretary of Energy, and the Director of National Intelligence” as consistent with “past practice.” A survey of oil analysts conducted by S&P Platts after May 8 suggested that “US oil sanctions on Iran will likely have an immediate impact of less than 200,000 bpd and will block less than 500,000 bpd after six months.” The announced policy is akin to a reduction of over 2 million barrels per day.

Something seems to have shifted during the OPEC meeting. As reports emerged that Japan had been asked to cease its imports of Iranian crude, Bijan Zanganeh, Iran’s oil minister, engaged in expectation management. During an interview with Bloomberg Television, he stated, “I don’t believe [the Japanese] can receive a waiver from the United States,” adding that Iran would need to “find some other way” to mitigate the effect of the oil sanctions. With Saudi Arabia cavalierly announcing that it will boost its production to record levels in July, it is easy to see how a Saudi commitment to raise production would have been coordinated with an American effort to eliminate Iran’s export market entirely.

To this end, Iran is facing the most serious challenge to its economy and political integrity to date. The Trump administration has taken its avowed commitment to exert “unprecedented financial pressure” far beyond the realm of coercion and into the realm of destruction. For Iran’s government, which receives about half of its revenues from oil sales, the prospects are grim. Of course, such an outcome is consistent with the regime-change goals of the Trump administration and its regional allies. They are seeking to engineer a collapse from within. But what is seemingly unaccounted for in such a scenario is the immense risk of regional chaos and conflict if they push Iran’s government to the brink. The risk is not merely that instability will lead to violence and mass displacement that could spill beyond Iran’s borders, but more likely that when faced with a near-existential threat, Iran’s ruling elite will seek to regain leverage in the most destructive ways possible.

In one plausible scenario, the Iranian reaction to the total embargo of its oil sales will be to try and impose a physical blockade on Saudi exports by closing the Strait of Hormuz and engaging in a new “tanker war.” The threat to close the strait has been a constant feature of hardline rhetoric from Iran over the years, and the move is easier said than done. But any suggestion that Iran could escalate in such a manner would no doubt spook oil markets—about 18 million barrels per day, equivalent to 20 percent of global supply, pass through the strait each day.

European Response

The prospect of a global oil crisis spurred by Trump’s brash move to deny waivers should frighten European leaders. Aside from the risks of confrontation in the region that would stem from any blockade attempt, the knock-on effects of an even short-term supply crisis could send the already fragile Eurozone economies into a recession. European officials have been quick to note the risks, characterizing the move as “really unhelpful and part of an escalation plan” and declaring that Europe “strongly disagree[s] with this plan.”

The timing could not be more fraught for Europe, which had been expected to present its long-awaited package of economic measures to Iran in the next week. These measures, intended to help incentivize Iran’s continued compliance with the JCPOA in the face of U.S. sanctions snapback, will have little meaning if the preservation of oil imports cannot be assured. Realistically, it will be difficult for Europe to find a way to maintain a viable importation mechanism in the absence of exemptions. If circumvention is not an option, Europe must find new leverage and compel the United States to change its policies. There are three actions that can be taken.

First, European governments must buy themselves and Iran time to reduce the chaos factor. Accelerating and increasing imports of Iranian oil over the next few months, basically allowing Iran to frontload its expected 2019 exports before the sanctions deadline kicks in, would help ensure that Iran retains an ability to sustain the rising pressure. Indian imports of Iranian oil surged in May in anticipation of the U.S. sanctions. European governments should, as a matter of national security, use any excess storage capacity to purchase as much Iranian oil as possible. In order to encourage Europe’s more independent oil traders and refiners to take on these purchases, Iran would need to offer attractive commercial terms in something akin to a flash sale.

Europe should also consider its own coercive measures. American oil exports to Europe have recently reached levels of around 500,000 barrels per day, levels approaching those of Iran. It would be relatively straightforward for Europe to declare that it will seek to eliminate imports of American oil to Europe as a countermeasure for Trump’s move to ban Iranian imports. The impact on the oil-producing American heartland and Trump’s political base could be profound. Importantly, Europe would not necessarily seek to use sanctions in order to enforce such a move. Sanctioning European companies that trade American oil would inhibit the ability of these multinational companies to pick up supply from other producers worldwide. A much more elegant way to impose a cost on the Americans would be to take a page out of the tariffs playbook. Imposing a hefty oil-import tariff would make it commercially unattractive for refiners to important American crude, and so the decision to cease importing American oil would technically be a voluntary decision rather than a decision requiring legal enforcement.

Sanctioning Trump

Finally, European entities could target Trump’s personal assets as damages for the costs incurred due to his prohibition on Iranian oil imports. Congressman Keith Ellison (D-MN) and Vox editor Matthew Yglesias have both recently argued that sanctioning Trump personally may be the best way to change his behavior. As Ellison puts it, “Sanctions targeting Trump’s own companies will sting in a way that he cannot ignore.”

But there may be a more elegant solution already at Europe’s disposal. The EU has initiated the revival of the so-called Blocking Regulation, a 1996 EU law designed to prohibit compliance with US sanctions by EU companies. The regulation includes a “clawback provision” that provides a mechanism for EU entities to sue for damages for costs arising from sanctions. The recovery of damages “may be obtained from the natural or legal person or any other entity causing the damages or from any person acting on its behalf or intermediary.” This broad definition could clearly be extended to Trump.

Moreover, the “recovery could take the form of seizure and sale of assets held by those persons, entities, persons acting on their behalf or intermediaries within the Community, including shares held in a legal person incorporated within the Community.” In short, Trump’s property and assets in Europe could be seized and sold. Given that the assessed costs related to a complete cessation of Iranian oil imports could easily amount to billions of dollars, Trump could ostensibly be threatened with the total seizure of his Europe-based wealth. Of course, the legal action probably would not need to go that far. Dragging the Trump Organization into European court would probably wake up Trump. He has a history of settling in the face of legal challenges, so a threat to his personal empire may force him to rethink his abuse of the American empire.

If Europe can muster the political courage to pursue these measures in the face of catastrophic security and economic risks introduced by the total oil embargo, it can gain the necessary leverage to push the United States to a more reasonable position. Europe must not rely on China or India or Turkey to skirt the U.S. sanctions. Given the immensity of the threat to global security arrangement represented by the abrogation of the JCPOA, and the global economic arrangement underpinned by the current composition of the oil markets, Europe must match Trump’s “nuclear option” with its own. Perhaps this kind of mutually assured financial destruction can bring the world back from the brink.

Photo Credit: IRNA