As more Russian oil goes east, Iran’s oil sales to China will be squeezed

ryanniesMay 20, 2022

Reuters

Bozorgmehr Sharafedin, Florence Tan and Chen Aizhu

Since the beginning of the London-Ukraine War, Iran’s crude oil exports to China have declined significantly. Beijing favored a significantly reduced Russian barrel, storing about 40 million barrels of Iranian oil in Asian maritime tankers and seeking buyers.

US and European sanctions imposed on Moscow’s invasion of Ukraine on February 24 pushed Russia’s crude oil further east.

According to shipper data, as of mid-May, about 20 oil-laden vessels from Iran were moored near Singapore.

Some tankers have been moored since February, but as Russian oil heads east, Iran’s oil stores have increased rapidly since April.

Kpler’s data analysis company said it estimated that Iran’s oil content in floating storage near Singapore had increased from 22 million barrels in early April to 37 million barrels in mid-May.

The United States banned Russia’s oil imports shortly after the invasion of Moscow, but the European Union is considering a gradual embargo, pushing more Russian oil cargo into Asia.

“Russia can switch almost half of its exports to Southeast Asia, especially China … and that is a major potential threat to Iran’s crude oil exports,” said Iran’s oil, gas and petrochemical export union in Teheran. Hamid Hosseini, a member of the board of directors, told Reuters. ..

Iran, which has been struggling for years with the oil industry under US sanctions imposed on Tehran’s nuclear program, has long relied on China’s oil purchases to lift its economy.

According to data and calculations by consulting firms, Iran’s exports to China were estimated to be 700,000 to 900,000 barrels (bpd) per day in March.

However, according to Iman Nasseri, FGE consultant’s managing director for the Middle East, April exports are estimated to have fallen by 200,000 to 250,000 barrels / day, a reduction of about one-quarter or one-third. Suggests.

According to Kpler, Iran exported an average of 930,000 barrels / day mainly to China in the first quarter, with a preliminary estimate of 755,000 barrels / day in April due to the difficulty of tracking Iran’s sales. , Said that the estimate can be modified.

Transactions under sanctions

“China is now buying clearly more (Russian) Ural cargo. Ural exports to China have more than tripled, despite weakening China’s imports. That’s what Homayoun Falakshahi, senior analyst at Kpler, said.

China, whose total oil imports have recently declined due to COVID-19 restrictions, is also the largest purchaser of Russia’s ESPO blended crude oil.

Iran and Russia have been in close contact over the past few weeks to discuss how to trade oil under sanctions, three sources told Reuters. According to one source, the Russian side wanted to know how Iran navigated transportation, trade and banks, but both sides also talked about the creation of joint ventures, banks and funds.

Another source said more talks were planned when Russia’s Deputy Prime Minister Alexander Novak visited Iran next week.

However, negotiations could not ease the competition to find buyers of Russian Urals and Iran’s crude oil. They usually have a high sulfur content and tend to be more expensive to process than Russian oil.

“No one is looking at Iranian crude oil anymore because Russian grades are much higher quality and cheaper. Iranian oil sellers are under severe pressure,” he said.

He said the Urals delivered to China were sold to Brent at a discount of $ 9 per barrel for delivery in June, so Iran’s barrels are offered at a discount of $ 12 to $ 15 to compete. Said it had to be done.

“Although you can legally buy Russian oil at a discounted price, Iran’s oil is still subject to sanctions, so people naturally choose an easier option,” European traders said in Iran. He mentioned stricter US sanctions on exports.

Russian oil and refined products are also flowing into other markets, especially India and the United Arab Emirates (UAE).

The arrival of Russian fuel oil at Fujairah’s UAE storage hub is expected to rise to about 2.5 million barrels in May, about 125% higher than April levels.

Meanwhile, India is increasing its purchases of Russian crude oil. By early June, India has imported more than 30 million barrels in the last three months, more than double the total imports in 2021, according to Kpler (Bozorgmehr Sharafedin in London, Florence Tan in Singapore, Chen). Report by Aizhu) Additional report by Rowena Edwards in London Edited by Edmund Blair and Mark Potter)