May 29, 2013 (TSR) – China aims to maintain its role as Iran’s largest oil customer, as Beijing shuns pressure from Washington and the EU to isolate Tehran over its nuclear programme.
Chinese refiners had delayed renewing term contracts with Iran this year, in the hope of securing better prices with Iran’s pool of buyers drying up because of tougher US and EU sanctions. China imported 435,000 b/d of crude from Iran in 2012, down by 21pc from 2011, with imports falling to 410,000 b/d in the first quarter of this year. But Chinese buyers agreed new contracts with Iran’s state-owned oil firm NIOC to receive 550,000 b/d from April.
Beijing received a renewal of its exemption from US sanctions on 7 December for its previous efforts to curb Iranian imports. But its increased buying has prompted complaints from the US State Department, while Congress is devising new legislation to try and rein in Iran’s oil sales.
The US House of Representatives foreign affairs committee on 22 May approved a bill that insists that the six countries identified as still importing Iranian oil reduce their purchases by a total of 1mn b/d within a year. The Nuclear Iran Prevention Act would require the US administration within 30 days to assess whether the six countries still purchasing Iran’s oil can meet that 1mn b/d reduction.
But Chinese state-owned trading firm Zhuhai Zhenrong, aims to take 240,000 b/d of Iranian crude and condensate this year, unchanged from 2012. Zhenrong is one of two Chinese firms, along with state-controlled Sinopec’s trading arm Unipec, importing crude from Iran.
Zhenrong’s Iranian crude imports have increased by 19pc/yr since 1995, when it imported just 10,000 b/d. It pays for the crude in euros through a bank account provided by the seller. It paid in US dollars before the heightened sanctions against Iran kicked in. Iran provides insurance for crude shipments and charters the vessels on behalf of Zhenrong. But a US Senate cross-party group is pushing for measures to prevent NIOC and Iran’s central bank from being able to conduct transactions in euros or other currencies. It wants to direct the government to sanction any foreign bank that converts Iran-held foreign reserves into a local currency.
The US imposed sanctions last year on Zhenrong and a bank linked to Chinese state-owned oil firm CNPC, accusing them of supplying oil products to Iran. But Washington is wary of specifically targeting China with direct financial sanctions for fear of creating a diplomatic rift. China is negotiating alongside the US, other members of the UN Security Council and Germany with Iran over Tehran’s nuclear programme, although talks have made little progress. Washington will be eager to avoid any potential discord ahead of a meeting in California on 7-8 June between President Barack Obama and his new Chinese counterpart Xi Jinping.