Bozorgmehr Sharafedin, Chen Aizhu

SINGAPORE/LONDON, (Reuters) – China’s Iranian oil imports fell below their peak levels in 2021 and 2022. This was due to a weakening demand from independent refiners. COVID-19 lockdowns hampered fuel margins as well as growing Russian oil imports.

As Western diplomats are losing hope in the revival of 2015’s nuclear pact, and high oil prices have encouraged Iran to take its own time returning to an agreement, Iran has slowed down oil purchases.

Reviving the nuclear agreement would enable Iran to increase its oil sales outside China, which has been Iran’s largest customer over the last two years. This is in addition to past clients from South Korea and Europe.

Russian crude oil, which is being displaced in Europe by declining demand and growing concern about Russia’s invasion, has been heading towards China. Russia launched a special operation to send thousands of soldiers into Ukraine on February 24, calling it a “special operations”.

Vortexa Analytics initial assessment showed China import nearly 650,000 barrels per daily of Iranian crude oil in April. That is slightly less than what was released in March at nearly 700,000.

Kpler (another data analytics firm) tentatively put Iran’s April Exports at 575k bpd. This is down from the average 840,000 bpd for the first quarter in 2022. The agency however expects to increase April volumes in the weeks ahead.

China’s independent oil refiners are known by the name teapots. They are located mainly in eastern Shandong province. The traders stated that the crude imports from Iran have fallen since February, with refiners operating at less than half of their capacity. This is due to soaring oil prices and stricter import quotas.

Emma Li, Vortexa’s China analyst, stated that Iranian barrels have been having trouble finding buyers ever since February after the independent plants reduced throughput.

Li said that six Iranian oil cargoes totaling eight million barrels were not able to be offloaded at Chinese ports. They floated off Shandong, Zhejiang ports for over three months.

Contrary to this, China’s crude seaborne imports from Russia rose 16% from March, reaching 860,000 bpd in April. This is the highest figure since December 2012, Refinitiv data revealed.

Despite April Russian exports being dominated by the Far East ESPO blend, it is now that the Urals are being forced from Europe.

Traders reported that at least one teapot maker bought an Urals June cargo on a discounted basis for $6-$7 per barrel.

Comparable to Iranian oil that was traded at $5/barrel under Brent

Teapots face terrible margins, but there is plenty of oil available. Both dealing with Iranian barrels and Russian barrels carries risk, so refiners will be cautious and pick the lower margins supplies,” stated a Shandong-based trading executive.

Traders have stated that Iranian crude was shipped to China as oil from Oman and the United Arab Emirates in an attempt to avoid U.S. sanction.

The U.S. president Joe Bid En’s administration was aware of Chinese purchases and decided not to enforce sanctions against Chinese companies or individuals.

China’s foreign ministry didn’t respond to our request for comment. A request for comments was not also received from Iran’s oil ministry.

Last year, Chinese customs data reported that China imported 260,000 tonnes (1.9 million barrels) each of Iranian oil in December and January. This was the first record for official Chinese records in one year.