New US sanctions against Iran are likely to decrease the amount of Iranian crude oil China imports. This is because there may not be enough ships to transport the oil, which could lead to higher shipping costs and make Iranian oil less competitive, according to S&P Global.
Increased Scope
Washington broadened the scope of its sanctions on Oct. 11 to include anyone operating in the Iranian petroleum and petrochemical sectors. The US treasury and state departments also utilized other sanction authorities to designate 23 vessels and 16 entities involved in the ghost fleet facilitating Tehran’s petroleum trade.
“Most of those vessels shuttled to China with Iranian barrels,” said a Shandong-based trade source with knowledge of the Iranian flows to China.
A Shandong-based independent refiner said sanctions complicate financing for affected cargoes, as “no bank will dare to handle cargoes shipped by a sanctioned vessel.”
In September, about 30 vessels loaded with Iranian crudes were discharged for China’s independent refineries, according to Commodity Insights estimates based on various market sources. Among these, six vessels were on the latest US sanctions list.
Shipping hurdles
Shipping companies might resort to ship-to-ship transfers in international waters, moving barrels from newly sanctioned vessels to others not on the list, some of the sources said.
Some Russian barrels have been similarly transported to China, following several rounds of sanctions on vessels.
“But generally speaking, the access to those ghost ships has narrowed, with the new sanctions,” a second China-based trade source said. “It takes time to rearrange the logistics and to bring flows back to the usual levels.”
Russia has remained China’s top crude supplier so far in 2024, with 2.16 million b/d deliveries over January-September, accounting for a 19.6% market share, data from China’s General Administration of Customs showed.
Iranian crude oil mainly sails from Iran to Malaysia where it is renamed and reloaded as Malaysian-origin crude oil.
But few Iranian cargoes have headed for Malaysia since early October amid the conflict between Iran and Israel. “The flow is set to fall further in a week or two, capping the arrivals to the Shandong market,” the Shandong-based trade source said.
Weak Margins
Besides the logistical challenges following the new US sanctions, weak refining margins and tight crude import quotas would also reduce crude feedstock demand from independent refineries, Sun said.
Independent refineries’ margins in Shandong for processing imported crudes slumped 63.1% week on week to Yuan 115 per metric ton ($2.12 b/d) as of Oct. 10, because of rising crude benchmark prices in the international market, according to local information provider Oilchem.
The refineries are estimated to have about 1.44 million b/d of crude import quotas for the fourth quarter, falling about 400,000 b/d from average crude inflows of 1.84 million b/d over January-September, according to Commodity Insights.
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Source: S&P Global
