China to Keep Buying Iranian Crude Despite U.S. Sanctions

Iran again insists OPEC members aren't allowed to make up for the shortfall of its crude exports. File Image / Pixabay

Faced with the growing realization that the Donald Trump administration isn't backing down on foreign policy and many European nations will abide by its sanctions against Iran for fear of reprisal, the Islamic republic once again insisted that other countries aren't allowed to make up for the expected loss of Iranian crude on the marketplace.

Specifically, Kazem Gharibabadi, permanent envoy to Vienna-based international organizations for Iran, told the SHANA news agency that "No country is allowed to take over the share of other members for production and exports of oil under any circumstance, and the OPEC Ministerial Conference has not issued any license for such actions."

This is a subtle but telling shift away from Iran's previous argument, that the Organization of the Petroleum Exporting Countries does not have the production capabilities to replace what could be in excess of a 1 million barrel per day loss of Iranian crude due to the sanctions.

OPEC has so far rejected Iran's call to support it against the U.S., but even if that were to change it's arguable that American drillers could go a long way in making up for the impending loss of Iranian crude: on Monday the U.S. Department of Energy said it was offering 11 million barrels of oil for sale from the nation's Strategic Petroleum Reserve ahead of the sanctions, for delivery from October 1 to November 30.

The sale is said to demonstrate that the Trump administration is taking measures to restrain energy price increases ahead of the sanctions, and it is yet another indication that the Americans are serious about not only playing politics but continuing their push to become the world's leading energy producer, at Iran's expense; earlier this year, they sold about 5.2 million barrels of oil from the SPR to five companies, including Valero Energy Corp and Phillips 66.

However, it remains to be seen whether the sanctions will be as big a disaster to the Iranian industry as some think: China, which has cut imports of U.S. crude as part of its trade war with Washington, opposes the sanctions, and on Monday sources told Reuters that Chinese buyers of Iranian oil were beginning to shift their cargoes to vessels owned by National Iranian Tanker Co for nearly all their imports.

The move came about after state oil trader Zhuhai Zhenrong Corp and Sinopec Group, Asia's biggest refiner, activated a clause in their long-term supply agreements with NIOC that allows them to use NITC-operated tankers.

A senior Beijing-based oil executive said, "The shift started very recently, and it was almost a simultaneous call from both sides."

A U.S. State Department official told Reuters the Trump administration was aware of China's tactics and that "We continue to discuss our Iran policy with Chinese counterparts and the implications of our reimposition of sanctions."

Fears of an economic slowdown due to the U.S./China rift have been brewing for some time, and the big question facing Iran is how much of a demand does China have for Iranian crude?

The question is salient, considering that although crude imports to China picked up in July after two months of decline, they were still along the lowest this year.