Iran’s oil trade with China is encountering significant setbacks due to a series of U.S. sanctions aimed at constraining Tehran’s economic ties. The impact of these measures is now becoming more apparent, as Iranian oil shipments face mounting logistical and financial hurdles.
Recent enforcement actions have targeted companies and tankers involved in moving Iranian oil to China, resulting in disruptions. According to executives at private refineries in China, which are the main purchasers of Tehran’s oil, shipments have recently been delayed. While specific details were not given, the executives attributed these delays to logistics complications and increasing costs that have snarled the supply chain.
Sanctions have forced many to adopt risky strategies to bypass U.S. restrictions. Some tankers have been sanctioned mid-journey, compounding the chaos. These actions highlight Washington’s intensified efforts to disrupt a trade that remains a crucial lifeline for Iran’s economy.
Despite the challenges, Chinese private entities continue to import Iranian oil, as it serves as a vital source of energy. Trade data reveals that over two-thirds of the vessels used for these shipments have been blacklisted by the U.S., according to analytics from Kpler. This stringent enforcement is prompting ports and shipping companies with international ties to reconsider their involvement with sanctioned vessels.
China has consistently opposed unilateral sanctions, asserting its right to trade with Iran. However, the ubiquity of the U.S. financial system means that entities engaged in the oil trade remain cautious, especially as U.S. authorities, including President Donald Trump, have vowed stricter compliance checks.
The high costs of circumventing these sanctions are evident. For instance, chartering a non-sanctioned supertanker to transport Iranian oil from Malaysia to China recently reached up to $6 million—a record high, marking a 50% increase from last year. Additionally, the use of smaller tankers—a less economical choice compared to larger vessels—has surged. In February, a major transfer involved an Iranian oil-carrying supertanker and three smaller vessels off Malaysia’s coast, a process marked by inefficiency and expense.
These logistical challenges also extend to pricing dynamics. Iranian oil for China has been sold at narrowed discounts, now between $0.50 to $1 less per barrel compared to global benchmarks like Brent futures. This reduction in discount from previous levels affects traders’ margins, with shipping rates significantly impacting pricing strategies.
Sanctions are increasingly making it difficult for shippers and traders, leading to escalated costs that cannot always be passed on to Chinese buyers, who seek lower-priced options. Notably, increased shipping rates pose a considerable challenge for sellers because they are hard to offset, as noted by Mia Geng, an oil analyst with FGE Group.
Despite the obstacles posed by sanctions, trade has continued robustly since 2018, with adaptability proving key. A notable increase in oil flows in recent months has been partly due to clearing backlogs from earlier delays.
Analysts further point out that sanctions are not foolproof. Ja Ian Chong from the National University of Singapore indicates that while sanctions aim to burden cost structures to provoke a change in behavior, complete isolation is unlikely.
In response to the increased scrutiny from the U.S., shippers have engaged in more clandestine practices, including turning off transponders during ship-to-ship transfers. These covert operations, especially prevalent off Malaysia, are an effort to obscure cargo origins from U.S. oversight.
President Trump has signaled an intention to intensify pressure on Iran through potentially enforcing secondary sanctions and possibly conducting ship inspections to discourage trade. This could have implications for China’s dealings unless shippers and financiers involved with Iranian oil rethink their strategies.
Anoop Singh from Oil Brokerage Ltd. suggests that while the current efforts have focused on ships and owners, targeting more systemic components like banks and governments could further disrupt the network supporting Iranian oil trade.
While U.S. sanctions continue to create hurdles for the Iran-China oil trade, they are unlikely to completely halt it. The trade’s resilience reflects its ability to adapt and find new pathways despite increasing operational costs and enforcement pressures. However, future U.S. actions could potentially reshape how this trade evolves.
