Prospects for Net Zero Crude Exports: China in 2020, January Tanker Update

China continues to import north of 200,000 barrels of oil per day (bpd) from Iran but there are indications that 2020 could be the year that the U.S. finally gets Iranian crude exports to effectively zero (illicit smuggling to Syria notwithstanding).  Led by Treasury Secretary Steven Mnuchin, U.S. officials have been quietly negotiating to get Chinese “teapot refiners” – smaller non-state firms somewhat outside Beijing’s controlling orbit – in line.

Already, the U.S. has made significant inroads in the last 12 months. Comparing the first and second halves of 2019, China’s oil imports from Iran dropped by almost half from 400,000 bpd to 225,000 bpd on average. During 2018, China was importing 650,000 bpd from Iran. U.S. pressure is clearly working, even on Iran’s biggest oil customer.

To make up the shortfall, “China has since turned to the Saudi’s, no longer able to trust Iran as a reliable source due to geopolitics.” It is also possible that the recent American decision to lift sanctions on one of the subsidiaries of COSCO will have created some leverage for China to continue reducing Iranian crude imports. Future sanctions relief on Chinese companies may be forthcoming if China reduces further.

Indeed, if Saudi Arabia and the other Gulf states can provide China with adequate supplies at a good price – the current Brent price has plummeted to $55 per barrel as the Novel Coronavirus outbreak has already throttled Chinese demand – Beijing’s usual pragmatism will win out. Moreover, given the Administration’s blunt priority of getting Iran crude exports to zero, and with Chinese exports to the massive U.S. customer market on the line in the ongoing trade dispute, China is unlikely to insist on Iran if Saudi and other sources can fill the gap.

Nonetheless, U.S. authorities should continue to carefully monitor the multiple journeys of sanctioned Iranian tankers still unloading in China. In January, UANI has been monitoring two Iranian tankers that completed deliveries to China. NITC Tanker HORSE departed Fujairah on January 3, 2020, with Iranian crude oil and reappeared on January 16, 2020, in the Strait of Malacca. On January 21, 2020, HORSE reappeared at Huizhou, China with the delivery of its contents occurring on January 26 at the MaBianZhou CNOOC Crude Terminal.

 (Sources: Bloomberg L.P., Mapbox, OpenStreetMap)

Similarly, NITC Tanker SERENA appeared in the Strait of Malacca on January 4, 2020, with Iranian crude oil. On January 11, 2020, SERENA reappeared at Huizhou, China on January 11, 2020, and completed the delivery of its contents on January 14, 2020, also at the MaBianZhou CNOOC Crude Terminal.

(Sources: Bloomberg L.P., Mapbox, OpenStreetMap)

A total Chinese pivot away from Iranian oil would be the jewel in the crown of the American “maximum pressure” campaign. If Iranian tankers like HORSE and SERENA have nowhere left to unload aside from Syria – already subject to stringent multilaterally imposed oil import sanctions – 2020 could be the year that the crude lifeline runs out for the regime.