China, the world’s largest oil buyer, faces a potential squeeze on its supplies of cheap Iranian crude, which account for around 13% of its imports, if Donald Trump intensifies the enforcement of sanctions on Tehran after his return as U.S. president in January. Trump, who was projected by Edison Research to have won Tuesday’s election, is expected to re-impose his “maximum pressure policy” of enhanced sanctions on Iran’s oil industry during his second term, according to Iranian, Arab, and Western officials. This is due to concerns regarding Iran’s nuclear program.
Such a move would increase the cost of China’s imports, putting additional pressure on a refining sector that is already grappling with weak fuel demand and tight margins. Independent refineries known as teapots would be particularly hard-hit. Vivek Dhar, a commodities strategist at the Commonwealth Bank of Australia, stated in a note that “A Trump victory may see the United States enforce sanctions against Iran, thereby reducing Iranian oil exports and prompting oil prices higher.”
In 2018, during Trump’s first term in the White House, he reinstated sanctions on Iran, which eventually led to a halt in Iran’s oil exports to India, Japan, and South Korea. In late 2019, China’s teapot refiners stepped in as buyers of discounted Iranian crude, filling the void left by China’s state oil firms that were cautious about U.S. sanctions. This move saved billions of dollars and solidified China’s position as Tehran’s top oil market.
China and Iran have developed a trading system that predominantly uses the Chinese yuan and a network of middlemen, bypassing the dollar and minimizing exposure to U.S. regulators, making it difficult to enforce sanctions. Meanwhile, analysts say that Washington has been hesitant to take actions that would reduce the global oil supply in the wake of the Ukraine war.
Vortexa Analytics, which monitors Iran’s oil flows, estimated that China’s imports of Iranian oil were 1.4 million barrels per day during the first nine months of this year. Last month, Washington expanded sanctions on Iran by adding measures against so-called dark fleet ships that transport its oil. This has slowed Iranian oil flows from Malaysia to China, according to a teapot trading manager who deals in Iranian oil and declined to be named due to the sensitivity of the matter. The manager said, “Even ship-to-ship (STS) activities could be hit. So the worry is more on the shipping than on banking,” referring to the practice of transferring Iranian cargoes between ships to mask their origins.
Independent refiner sources suggest that teapots, some of which are already operating at a loss, might be forced to further reduce their operations if Trump enforces stricter sanctions on Iran as well as Venezuela, tightening supplies and further squeezing margins. However, Vortexa analyst Emma Li noted that China’s imports from Iran were up about 30% between January and October despite tighter sanctions, which have encouraged “dark fleet” shipping activity. She said, “We may only see significant changes when other players, such as banks, are added to the list.”
Iranian oil is typically rebranded by dealers as originating from Malaysia, Oman or elsewhere to circumvent U.S. sanctions. Beijing repeatedly defends its oil trade with Iran as legitimate and in accordance with international laws.
China’s Iranian Oil Supply at Risk from Potential Trump Sanction Tightening Post-Election Win