Tankers are offloading millions of barrels of Iranian oil into storage tanks at Chinese ports, creating a hoard of crude sitting on the doorstep of the world’s biggest buyer.
Two and a half months after the White House banned the purchase of Iran’s oil, the nation’s crude is continuing to be sent to China where it’s being put into what’s known as “bonded storage," say people familiar with operations at several Chinese ports. This supply doesn’t cross local customs or show up in the nation’s import data, and isn’t necessarily in breach of sanctions. While it remains out of circulation for now, its presence is looming over the market.
The store of oil has the potential to push down global prices if Chinese refiners decide to draw on it, even as the Organization of Petroleum Exporting Countries and allies curb production as growth slows in major economies. It also allows Iran to keep pumping and move oil nearer to potential buyers.
“Iranian oil shipments have been flowing into Chinese bonded storage for some months now, and continue to do so despite increased scrutiny," said Rachel Yew, an analyst at industry consultant FGE in Singapore. “We can see why the producer would want to do so, as a build-up of supplies near key buyers is clearly beneficial for a seller, especially if sanctions are eased at some point."
There could be more of the Persian Gulf state’s oil headed for China’s bonded storage tanks, Bloomberg tanker-tracking data show. At least ten very large crude carriers and two smaller vessels owned by the state-run National Iranian Oil Co. and its shipping arm are currently sailing toward the Asian nation or idling off its coast. They have a combined carrying capacity of over 20 million barrels.
The bulk of Iranian oil in China’s bonded tanks is still owned by Tehran and therefore not in breach of sanctions, according to the people. The oil hasn’t crossed Chinese customs so it’s theoretically in transit.
Some of the crude, though, is owned by Chinese entities that may have received it as part of oil-for-investment schemes. For example, one of the Asian nation’s companies could have helped fund a production project in Iran under an agreement to be repaid in kind. Whether this sort of transaction is in breach of sanctions isn’t clear, and so the firms are keeping it in bonded storage to avoid the official scrutiny it would if it’s registered with customs, according to the people.
Nobody replied to a faxed inquiry to China’s General Administration of Customs.
The build-up of Iranian oil in Chinese bonded storage has yet to be clearly addressed by Washington. The White House ended waivers allowing some countries to keep importing Iranian oil on 2 May. There are currently no exemptions issued to any country for the import of Iranian oil, and any nation seen importing cargoes from the Persian Gulf producer will be in breach of sanctions, according to a senior Trump administration official, who asked not to be identified because he wasn’t authorized to speak publicly about the matter.
“The US will now need to define how it quantifies the infringement of sanctions," said Michal Meidan, director of the China Energy Programme at the Oxford Institute for Energy Studies. There’s a lack of clarity on whether it would look at “financial transactions or the loading and discharge of cargoes by company or entity," she said.