Iranian crude inflows to China seen stable even as US sanctions more ships

Iranian crude inflows to Chinese independent refineries have likely remained stable following a rebound in February, despite new US sanctions on the country that could disrupt the delivery of about 2.87 million barrels later in March, trading and refining sources told Platts on March 14.

On March 13, Washington added nine crude tankers to its sanctions list, including six VLCCs, two Aframaxes and one Panamax, due to their involvement in transporting Iranian oil. Platts is part of S&P Global Commodity Insights.

Considering the newly included tankers in the list, a total of 232 ships have been identified as facilitating Iranian crude oil exports since 2023. Of these, 163 tankers are currently sanctioned by the US Department of the Treasury's Office of Foreign Assets Control, according to S&P Global Commodities at Sea(opens in a new tab).

"It certainly lowers the availability of the non-sanctioned vessels in the shadow fleet, but the Iranian flows to China remain sustainable until the next round of sanctions, as some private ports accept sanctioned Aframaxes, while demand is strong for the most competitive crudes in the market in terms of the prices and specs," a Shandong-based trader said.

Four of the nine vessels included in the latest sanctions list were active in March.

A VLCC named Blue Gulf and an Aframax named Lydya N were in transit, scheduled to deliver 2.87 million barrels of unidentified crude cargoes from Malaysia to China in the second half of March, according to CAS.

Iranian oil barrels typically undergo ship-to-ship operations in Malaysian waters and acquire Malaysia-origin certificates before proceeding to China.

The Panamax Peace Hill discharged 464,458 barrels of fuel oil loaded from Malaysia at Shandong's Dongjiakou port on March 5, CAS data showed. The other Aframax, Seasky, delivered 720,360 barrels of Russian Sokol to the Rizhao port in Shandong on March 10.

On March 14, the price of Iranian Light crude remained unchanged for three days, at a discount of around $1/b against the ICE Brent Futures on a DES Shandong basis, widening from a previous discount of 80 cents/b, according to market sources. Meanwhile, Iranian Heavy crude continued to be at a bigger discount of $3.5/b on the same basis.

Overcoming logistical challenges

The latest sanctions were imposed as Iranian crude cargoes successfully overcame logistical challenges to reach China's independent refineries. Arrivals in February rebounded by 89% to 1.6 million b/d, the second highest in history, up from a 12-month low of 850,000 b/d in January.

Although the US imposed sanctions on 13 tankers that shipped Iranian oil on Feb. 24, Platts data shows that 5.27 million mt of Iranian crude is scheduled to arrive at eastern China's berths in Shandong province in the first half of March, surging 54% from H1 February.

The volume in February was transported by 29 ships, including VLCCs and Aframaxes, which discharged Iranian crude in Shandong after conducting ship-to-ship operations in Malaysian waters.

All of these vessels were part of the existing shadow fleet, including two sanctioned vessels that were accommodated by private ports in Shandong, according to CAS.

The state-run Shandong Port Group (SPG), which operates nearly all of the VLCC berths in Shandong province, has maintained a blacklist of vessels sanctioned by the US since early January.

Since SPG introduced the blacklist in January, only 21 carriers have discharged Iranian crude in China. Some of the January arrivals carried by sanctioned vessels were diverted to private ports in Shandong, Zhejiang, and Guangdong provinces.

Iranian crude has become a crucial cost-saving tool not only for small independent refineries but also for their larger private counterparts, driving strong demand from China.

"The private mega refineries are less price-sensitive to those Iranian barrels than their small-sized independent peers," said a trade source. "To the mega plants, the discounts for the Iranian barrels are too good to have compared with the dear, regular Middle Eastern grades."

Production outlook

Analysts are divided on the extent to which Iranian production would be curtailed if the US intensifies sanctions further, as vessels shipping Iranian crude have become much more adept at evading detection. Additionally, warming US relations with Russia -- a traditional ally of Iran -- and increasing trade tensions between Washington and China, the largest customer of Iranian crude, could complicate the outlook.

Commodity Insights analysts forecast that Iranian production could fall by about 500,000 b/d year over year by the third quarter of 2025, although they noted a high level of uncertainty surrounding this projection.

Iran pumped 3.23 million b/d of crude in February, according to the latest Platts OPEC+ survey.

When US President Donald Trump withdrew the US from the Iran nuclear deal during his first term in office, Iranian production fell to as low as 1.95 million b/d in August 2020.