Since Russia’s invasion of Ukraine, Iran’s oil supplies to China have decreased as Beijing prefers cheaper Russian oil.
Since the start of the Ukraine crisis, Iran’s crude supplies to China have plummeted as Beijing prefers heavily discounted Russian barrels, leaving around 40 million barrels of Iranian oil parked on tankers at sea in Asia and looking for buyers.
Sanctions imposed by the US and Europe in response to Moscow’s invasion of Ukraine on February 24 have pushed more Russian petroleum east, where China has snatched it up, reducing demand for oil from Iran and Venezuela, all of which are subject to Western sanctions.
According to shippers’ statistics, about 20 tankers carrying Iranian oil were anchored near Singapore in mid-May.
Although some tankers have been anchored since February, the number of tankers carrying Iranian oil has increased dramatically since April, according to trading and shipping sources, as more Russian oil heads east.
The volume of Iranian oil in floating storage near Singapore, according to the Kpler data and analytics company, increased to 37 million barrels in mid-May from 22 million barrels in early April.
Shortly after Moscow’s invasion, the United States restricted Russian oil imports, while the European Union is mulling a phased embargo, forcing more Russian oil cargoes to Asia.
Russia can shift nearly half of its shipments to Southeast Asia, particularly China, posing a significant danger to Iranian oil exports, according to Hamid Hosseini, a board member of Iran’s Oil, Gas, and Petrochemical Products Exporters’ Union in Tehran.
Iran’s oil industry has been struggling for years as a result of US sanctions imposed over the country’s nuclear program, and the country has long relied on Chinese oil sales to keep the economy afloat.
According to data and consultancy firm assessments, Iran’s shipments to China in March ranged from 700,000 to 900,000 barrels per day (bpd).
However, according to Iman Nasseri, general director for the Middle East at FGE consultancy, shipments plummeted by between 200,000 and 250,000 bpd in April, implying a loss of around a quarter to a third.
Kpler said Iran shipped 930,000 barrels per day on average in the first quarter, mostly to China, and that its early estimate for April was 755,000 barrels per day, though that estimate could be changed due to the difficulty of tracking Iranian shipments.
China is certainly purchasing more [Russian] Urals cargoes at this time. Ural exports to China have increased by more than thrice. Despite a drop in Chinese imports, this is the case, according to Homayoun Falakshahi, a senior analyst at Kpler.
China is also the leading consumer of Russian ESPO Blend crude, despite the fact that total oil imports have lately decreased due to COVID-19 restrictions.
Three sources told Reuters that Iran and Russia have been in regular contact in recent weeks to discuss ways to trade oil under sanctions. According to one source, Russia sought to study how Iran handled transportation, trade, and finance, and the two countries explored forming cooperative firms, banks, and funds. More negotiations are expected when Russian Deputy Prime Minister Alexander Novak visits Iran next week, according to another source.
However, the talks haven’t reduced the battle for buyers for Russian Urals and Iranian crudes, which are typically heavier and contain more sulphur, making them more expensive to process than Russian oil.
“No one is looking at Iranian crude these days since Russian grades are far better quality and cheaper.” “Iranian oil suppliers are under a lot of pressure,” a Chinese refinery trader stated.
According to him, Urals transported to China were selling at a $9 discount to Brent for June delivery, therefore Iranian barrels had to be sold at $12 to $15 discounts to compete.
“You can legally buy Russian oil at a discount, but Iranian oil is still subject to sanctions, so people naturally choose the easier choice,” a European dealer said, alluding to US penalties on Iran’s exports.
Other markets, particularly India and the United Arab Emirates, are receiving Russian oil and refined products (UAE).
Arrivals of Russian fuel oil at the UAE storage hub of Fujairah are expected to reach 2.5 million barrels in May, up 125 percent from April levels.
Meanwhile, India has raised its purchases of Russian crude oil. According to Kpler, India will have imported more than 30 million barrels in the last three months, more than doubling the volume imported for the entire year of 2021.
Source: Reuters
