China is importing record amounts of oil from Iran as the country increases production in defiance of the possibility of more U.S. sanctions. Current sanctions were put in place due to Iran’s nuclear program, and American politicians are looking to increase pressure following Hamas’s assault on Israel on October 7. Iran has historically supported Hamas, though Tehran has denied any role in the attacks.

Legislators in the United States are now working on a bill restricting foreign refineries and ports that handle Iranian petroleum exports.

Critical details about Iran and China’s oil trade are as follows:

WHAT AMOUNT OF IRANIAN OIL DOES CHINA BUY?

According to ship-tracking data from Vortexa, China, the largest crude importer in the world and Iran’s top customer, I purchased 1.05 million barrels per day (bpd) on average of Iranian oil in the first ten months of 2023. This is 60% more than the pre-sanction peaks that Chinese customs reported in 2017. This year, imports increased due to Tehran’s production increase and generous discounts.

According to Reuters surveys and OPEC estimates, Tehran’s October output increased marginally to 3.17 million bpd, the most since Washington reimposed sanctions on Iran in 2018.

According to Vortexa statistics, China’s imports from Iran are projected to have hit 1.45 million bpd in October, the highest monthly figure ever.

How is oil from Iran getting into China?

Since December 2020, China’s customs has not documented any direct imports from Iran, with the exception of two shipments in December 2021 and January 2022. Most Iranian oil imported into China is labeled as coming from Malaysia or other Middle Eastern nations.

An aging fleet of tankers known as the “dark fleet” transports the oil; to avoid being discovered, these vessels usually turn off their transponders when loading at Iranian ports.

As another way for these ships to hide their activities and ease concerns about possible contamination, they hide where they are and do ship-to-ship (STS) operations at places outside of approved transfer zones, sometimes when the weather is terrible.

According to Vortexa and Kpler, these ships occasionally become trackable by satellites close to ports in Oman, the United Arab Emirates, and most notably Malaysia, a major transshipment center, before unloading cargo mostly at ports in China’s Shandong region.

China uses quotas to control the import of crude oil. When quotas were tight earlier this year, merchants mislabeled a few cargoes of Iranian heavy oil as bitumen mix, which spurred Chinese officials to increase shipping inspections.

Which refineries in China purchase Iranian crude?

Once-important Iranian oil buyers, Sinopec and PetroChina, are massive state refiners that have made investments in Iranian oilfields. However, since late 2019, when U.S. President Donald Trump reinstated restrictions on Tehran’s petroleum exports, they have not lifted Iranian oil.

The number of flows to China fell precipitously at first due to the sanctions, but as additional independent refiners joined the purchases, the quantities increased.

Chinese dealers assert that most of the more than 40 independent Chinese refiners, also called teapots, process Iranian oil. Teapots don’t need to collaborate with Western businesses on technology and are not heavily exposed to the dollar-based global financial system. It is thought that Chinese money is used to pay for the majority of the transactions.

Why is Iranian oil preferred by independent refineries?

Primarily due to the oil’s affordability and high quality. The primary export grade, Iranian Light, trades at a $13 per barrel discount to ICE Brent on a deliver-ex-ship basis in Shandong for delivery in December. This is in contrast to the roughly $5 per barrel premium for comparable-quality Oman oil.

WHAT POSITION DOES BEIJING TAKE ON THE TRADE?

China also purchases crude from Venezuela and Russia, both of which are subject to U.S. sanctions. Beijing has always argued that its regular commerce is entitled to respect and protection and has rejected unilateral penalties.

Nonetheless, according to customs records China’s last officially documented shipment of Iranian oil for state reserves arrived in early 2022,

WHICH ACTIVITIES HAS THE US GOVERNMENT TAKEN TO ENFORCEMENT?

Washington has imposed sanctions on more than 180 people and organizations since 2021 who are either connected to Iran’s petrochemical and petroleum industries or to the transportation and laundering of illegal funds.

It has been determined that more than 40 vessels are the sanctioned entities’ property that is prohibited.

The State Department told Reuters in October that the U.S. administration also routinely interacts with other nations in an effort to adamantly dissuade them from acting in a way that would violate Iran’s sanctions.