Bourse and Bazaar | Esfandyar Batmanghelidj: New data from China�s customs administration show a significant drop in purchases of Iranian oil. The declared value of September imports was just USD 254 million, down 34 percent from August and down 80 percent from the same month last year.





The September data appears to end a period of relative stability for Chinese imports of Iranian oil following the Trump administration�s revocation of a key sanctions waiver in May, since when China has continued to purchase Iranian oil in direct violation of U.S. sanctions.


But the decline in purchases of Iranian oil was not matched by a decline in Chinese purchases of non-oil goods. Non-oil imports from Iran exceeded USD 500 million in September, a level of monthly trade that has remained stable since April of this year and which is consistent with the monthly average observed over the last two years.


This suggests that the fluctuation in oil purchases is not related to a system-wide disruption in China-Iran trade such as the banking difficulties that stymied commerce late last year. Additionally, Chinese exports to Iran did not decline month-on-month in September.













According to data provided by TankerTrackers.com, fewer barrels of oil were observed departing Iran in August than in July. Observed exports amounted to around 670,000 bpd in August, down by about 130,000 bpd from the previous month. This drop in observed exports offers one explanation as to why Chinese declared imports of Iranian oil were lower in September than in August�export levels in a given month tend to appear as declared imports in the following month given the four week journey of tankers at sea.


Notably, any decision to scale back imports of Iranian oil in September would have predated the Trump administration�s move to sanction tanker subsidiaries of Chinese state shipping giant COSCO involved in the transport of Iranian oil. The Chinese government has reportedly asked the Trump administration to remove sanctions on COSCO as part of its ongoing trade negotiations.


In July, U.S. officials had publicly expressed concern about continued Chinese purchases of Iranian oil, suggesting that China was given prior warning that its tanker fleet could be targeted with sanctions designations. This may have spurred China to reduce the use of its own VLCC tankers in the transport of Iranian oil. The fleet of the National Iranian Tanker Company (NITC) has long been the primary means by which Iranian oil is exported to China, but having fewer Chinese tankers picking up oil from terminals in Iran would nonetheless reduce export capacity, depressing overall imports.


However, data on observed exports from Iran does not correspond to the drop in declared imports in September�s customs data. The value of the observed exports is considerably higher than the USD 250 million in Chinese purchases declared for September. The market value of Iran�s August exports is over USD 1.2 billion.�Syria is the only other customer currently purchasing Iranian oil and imports significantly less than China. So where is the additional oil going?













Some tankers which departed Iran for China in August are still in transit, waiting for ship-to-ship transfers that will take the Iranian crude to its final port destination. Other tankers may have delivered their oil into bonded storage, meaning that the oil has not yet been sold to China and is therefore not captured in the customs data.


But the most obvious explanation for why declared imports lag observed exports is actually captured in the customs data�just not in the entry for Iran. Reports earlier this summer noted ship-to-ship transfer activity off the coast of Malaysia that appeared to be tied to exports from Iran. Chinese customs data from the last few months illustrates how the drop declared imports from Iran is concurrent with a marked increase in imports from Malaysia.


Since May of this year, Malaysia has exported an average of USD 1.2 billion worth of oil to China each month. The monthly average in the twelve months leading up to May was just USD 1 billion. Re-export of Iranian oil via Malaysia allows China to overcome the capacity problem introduced by the threat of sanctions on major players like COSCO. China can use smaller tankers for the final leg of the journey from Iran, picking up oil from Iranian VLCCs.


Looking ahead, TankerTrackers.com has reported total Iranian exports of around 485,000 bpd in September, a decline of 185,000 bpd when compared to the previous month. With less crude at sea, the value of oil imports declared in China�s October customs data may even fall below the September level. Yet there is little evidence that China is making a strategic decision to further decrease imports of Iranian oil. On the contrary, the strategy to sustain a baseline of imports appears to be growing more sophisticated.