From an American standpoint, the Chinese could be perceived as Iran’s saving grace against biting Western sanctions, primarily by persisting in their importation of Iranian oil. Conversely, critics within Iran construe these substantial oil discounts as plundering of the nation’s resources. There have been various statistics on Iran’s oil export rates and special discounts to China coming to the fore as a topic of robust debate.
A report by ‘Kepler Energy’ information platform discloses an ascent in Iran’s oil export levels to China, hitting a peak of one million bpd this year. Similarly, the International Energy Agency’s recent report corroborates Kepler’s assessment of increased Iranian daily oil exportation to China, affirming the one million barrels mark.
As per these reports, while Iran’s oil export levels to China have seen periods of volatility in past years, this year has witnessed a significant amplified volume. Comparative data suggests that Iran’s exports to China gravitated around the 800,000 bpd mark in the previous year.
In the period anteceding the US sanctions, China’s oil imports from Iran constituted approximately 11% of China’s aggregate oil imports. However, in contemporary times, increased oil exports from diverse nations such as Russia and Persian Gulf allies into China have precipitated a reduction in Iran’s share of the Chinese oil market. In some instances, Iran exports its oil under pseudonyms, representing other countries.
So, why the large discounts to China?
Observers of the energy market, including media professionals and sector experts, posit that China procures Iran’s oil at notable discounts. Based on some statistics, Iran’s recent oil rate offered to China has a slash of around $12-15 per barrel. The reasoning behind these generous discounts spans a range of factors, some being universally pertinent to the Chinese, whilst others are engineered to serve regular Iranian oil consumers under specific temporal contingencies.
Fiercely competitive landscape of oil exports
Iran squares up against Russia, a formidable rival in the Chinese energy market which is angling for supremacy through the provision of high discounts. Certain findings argue that the discounts offered by Iran to China surpass those by Russia. Data implies that the Russians extend discounts in the range of $6-10 per barrel to Chinese consumers.
Factoring into this competition is Saudi Arabia’s increasing prominence as a regional energy supply hub for China, necessitating an under-sanction Iran to amplify the allure to Chinese consumers by presenting more profitable deals.
An understanding congruent with long-term agreement
There are educated conjectures that suggest these discounts for procuring Iranian oil and energy resources serve as an incentive, fostering China’s steadfast commitment to the 25-year strategic agreement it shares with Tehran. A principal clause in the Iran-China agreement pertains to comprehensive cooperation within the oil and energy sector. Through the past two decades, China has demonstrated active involvement in the preservation and enhancement of three oil refineries, operation of oil reserves in the Caspian Sea, and the evolution of gas fields in the Persian Gulf.
Mediation by private entities
Iran’s oil finds its way into China by virtue of non-state and semi-autonomous petrochemical refineries, colloquially termed “teapot” within the Chinese demographic. These private refineries, notable on the global scale as substantial oil consumers, exert an active presence in oil-exporting territories within the Middle Eastern lands. Teapots cater to a fifth of China’s crude oil requirements. These refineries operate under a mechanism of intermediation for China’s oil supply, procuring a governmental license, acquiring discounted oil from exporting nations, and consequently injecting this oil into Chinese refineries. In the context of Iran’s sanctions, teapots serve a pivotal function in facilitating the conveyance of Iran’s oil to China, their activity within China notwithstanding despite its contentious essence.
According to data available up to June 2023, Lawen Namu Petroleum Trading Co., situated in Qingdao, is among the teapot refineries consuming a significant portion of Iranian crude oil. The cumulative volume of oil shipments procured by the company from Iran approximates to 39 million barrels. Western entities monitoring Iran’s sanctions currently liaise with this refinery and other Chinese purchasers, with the aim to constrict transactions involving Iran.
The obstacle of sanctions
The barriers impeding the augmentation of Iran-China economic collaboration are manifold and intricate, yet sanctions indubitably form the primary cause inhibiting Iran’s bargaining power relative to China and its other economical alliances. Concurrently, the revenue from Iran’s oil exports doesn’t revert directly or in its real value to Iran. Remuneration for Iran’s oil exported to China takes multiple forms such as investment, accumulation of Iran’s financial reserves in Chinese banking entities, barter, currency swap, among others.
Compensation for sluggish investment
It seems as though Chinese investments course into Southern Persian Gulf nations, increasing oil acquisitions from Iran emerge as a Chinese means to offset the dearth of direct investment within Iran. Paradoxically, Iranian specialists hold the conviction that if Tehran aspires to execute an Eastern policy, attracting Chinese investment would render the country more attuned to Iran’s security concerns. Subsequently, China would evolve as an integrative force for Iran within less strained international relation scenarios.
Compensation for budget deficit
The report by Kepler posits that in the tenure of the current government, Iran managed to offset a substantial portion of the budget deficit and sidestep inflation exceeding 100% on account of escalated oil exports and receipt of its foreign exchange earnings.
These unfold against the backdrop of China’s escalating inclination towards oil procurement, assessed with respect to its initiative to accumulate energy in the face of looming geopolitical uncertainties. However, Iran finds no mention among the top eight suppliers of China’s oil.
Due to sanctions and myriad methods of oil exportation from Iran, no sound insights exist regarding the actual volume and value of Iranian oil exported to China, with these statistics largely emerging from unofficial tracing conducted by institutions and energy specialists. Nonetheless, several experts within the energy sector uphold that Beijing’s role as a conduit for the re-entry of Iranian oil into the international market should not be downplayed.