Chinese Oil Imports from Iran Set to Decline Amid Rising US Sanctions and Shipping Costs
Iranian oil shipments to China, the world’s largest crude importer, are expected to decline sharply in the coming months due to new US sanctions targeting Chinese refiners and oil tankers. The latest sanctions, announced on Thursday, have driven up freight costs and disrupted supply chains, making it more expensive and complex for Chinese refiners to import Iranian crude.
Despite the rising costs and trade hurdles, analysts and traders expect China to continue importing Iranian oil by employing workarounds such as rebranding shipments and using third-party intermediaries. However, the sanctions are likely to dampen import volumes in the near term.
Details of the US Sanctions and Their Impact on Oil Flows
The US Treasury Department imposed sanctions on multiple entities, including:
- Shouguang Luqing Petrochemical, a private Chinese refinery in Shandong province.
- Iranian oil tankers that supply crude to Chinese plants.
- Logistics companies involved in transshipping oil to China.
The sanctions are part of the US “maximum pressure” campaign aimed at reducing Iran’s oil exports to zero, which was reinvigorated by Donald Trump’s recent call for stricter economic measures against Tehran.
Rising Freight Costs for Iranian Crude Shipments
The sanctions have significantly increased shipping costs, making Iranian oil imports less profitable for Chinese refiners.
- Freight costs for a Very Large Crude Carrier (VLCC) sailing from Malaysia (a key transshipment point for Iranian oil) to Shandong, China, have more than doubled since late 2024.
- Costs surged to $3–$4 per barrel, compared to $1.50–$2 per barrel before the sanctions.
- This has made Iranian oil less attractive compared to non-sanctioned sources.
China’s Iranian Oil Imports Already Under Pressure
Even before the latest sanctions, China’s Iranian oil imports were under strain due to rising freight costs and reduced shipping capacity.
- In January 2025, Chinese imports of Iranian crude dropped to 898,000 barrels per day (bpd).
- Imports recovered to 1.43 million bpd in February, according to Kpler, an analytics firm.
- About 33 million barrels were delivered in March, with volumes forecasted to reach 1.7 million bpd before the latest sanctions.
- However, Kpler’s senior analyst Muyu Xu warned that discharge volumes for the remainder of March could decline sharply due to the new restrictions.
China’s Workarounds to Maintain Oil Imports
Despite the sanctions, Chinese refiners and traders are expected to find alternative routes and payment structures to continue importing Iranian oil.
- Rebranding shipments: Most Iranian oil shipped to China is rebranded as Malaysian crude by traders, making it difficult for US authorities to track.
- Third-party intermediaries: Chinese firms are likely to increase the use of intermediaries to mask the origin of Iranian oil.
- Entity restructuring: To avoid direct sanctions, refiners may restructure their business entities, making it harder for the US to track ownership and enforce restrictions.
China’s Response to US Sanctions
The Chinese government has condemned the US sanctions as “indiscriminate and illegal,” reaffirming its support for continued trade relations with Iran.
- On Friday, Beijing reiterated its opposition to unilateral sanctions, pledging to protect the rights of Chinese enterprises.
- Chinese foreign ministry spokesperson stated:
“China opposes the long-arm jurisdiction and illegal sanctions imposed by the US. We will take necessary measures to safeguard the legitimate rights and interests of Chinese companies.”
Implications for the Global Oil Market
The new US sanctions on Iranian oil shipments have broader implications for global oil prices and supply chains:
- Oil price volatility: Tighter sanctions on Iranian oil could reduce supply, potentially driving crude prices higher.
- Pressure on Chinese refiners: Rising shipping costs and sanctions compliance risks could lower Chinese demand for Iranian oil, reducing Tehran’s export revenue.
- Increased competition for alternative crude: Chinese refiners may diversify their oil imports, increasing competition for supplies from Russia, Venezuela, and Iraq.
Impact on Iran’s Oil Revenues
The sanctions are expected to cut into Iran’s oil export revenues, further weakening its economy, which is already under strain from existing US measures.
- Iranian oil sales to China account for over 10% of China’s crude imports.
- A decline in volumes would reduce Iran’s foreign currency reserves, exacerbating its economic challenges.
- Tehran may be forced to offer heavier discounts to retain Chinese buyers.
Market Reaction and Oil Prices
The sanctions have caused volatility in oil prices:
- Brent crude futures rose 1.8% to $86.40 per barrel on Friday, reflecting concerns over tightening Iranian supplies.
- West Texas Intermediate (WTI) climbed 2.1% to $82.70 per barrel.
- Shipping stocks rallied, with Euronav NV gaining 4.7%, as investors bet on higher tanker rates.
Outlook: China to Maintain Oil Ties with Iran Despite Sanctions
While the latest US sanctions will increase the cost and complexity of importing Iranian oil, China is unlikely to stop its purchases.
- Strategic dependence: Iran is a key oil supplier for China, and Beijing will continue to circumvent US sanctions through off-the-books transactions.
- US-China tensions: The sanctions could further strain US-China relations, as Beijing continues to defy US measures.
- Impact on Iranian output: Although Iranian oil exports may decline in the near term, Tehran will likely find new shipping channels and financial networks to sustain flows.
Conclusion: Sanctions Raise Oil Costs but Fail to Deter China
The US crackdown on Iranian oil tankers has driven up shipping costs and complicated the flow of crude to China. However, the impact is expected to be temporary, as Chinese refiners are likely to find alternative methods to maintain supply.
In the longer term, geopolitical tensions between the US and China over Iran’s oil trade could intensify, adding volatility to global energy markets.
For latest Business and Finance News subscribe to Globalfinserve, Click here
#NYSE #USMARKETS #DOW #SP500 #NASDAQ #Economy #Finance #Business #Global #Earnings #CEO #CFO #Analysis #AI #Tech