China’s Iran Oil Shock

China’s notorious increase in oil imports from Iran has reached unprecedented levels, openly challenging U.S. sanctions.

Despite the existing sanctions linked to Iran’s nuclear program, China persists in purchasing from them, prompting concerns among U.S. lawmakers. This is further fueled by recent attacks on Israel by Hamas, an Iran-backed group, and to make things worse, money from China’s oil import financed this group and their atrocious acts.

China, Iran’s top customer, and the world’s largest crude importer, bought an average of 1.05 million barrels per day in the first 10 months of 2023. This marks a 60% increase from pre-sanction levels in 2017. The surge in imports is attributed to Tehran’s boosted output and attractive discounts.

While Tehran’s October output reached 3.17 million barrels per day, the highest since 2018, China’s October imports are estimated to have hit around 1.45 million barrels per day, the highest monthly level ever.

To navigate sanctions, almost all Iranian oil entering China is labeled as originating from Malaysia or other Middle Eastern countries. This is facilitated by a “dark fleet” of older tankers that turn off their transponders when loading at Iranian ports to avoid detection. These tankers use various tactics, including faking locations and conducting ship-to-ship operations outside authorized transfer zones.

While state refiners Sinopec and PetroChina were once major Iranian oil clients, they ceased lifting Iranian oil in late 2019 due to U.S. sanctions. However, independent Chinese refiners, known as teapots, have stepped in, with over 40 reportedly processing Iranian oil. The main attraction for teapots is the cost-effectiveness and good quality of Iranian oil.

Despite facing U.S. sanctions, China’s stance on the trade remains firm. Beijing opposes unilateral sanctions and insists that its normal trade deserves respect and protection. The U.S. government has taken enforcement actions since 2021, sanctioning over 180 individuals and entities related to Iran’s petroleum sectors. Additionally, more than 40 vessels have been identified as blocked property of sanctioned entities.

In response to concerns about lax enforcement, U.S. lawmakers are considering legislation that could impose measures on foreign ports and refineries processing Iranian oil, aiming to increase pressure on Iran and its supporters.