Amidst the sanctions slapped on Iran by America, it has been reported that tankers are still being offloading millions of barrels of Iranian oil into storage tanks at Chinese ports.
This has created a hoard of crude sitting on the doorstep of the world’s biggest buyer with no sale actually happening from Tehran. It has been two and a half months to the sanctions, where the White House has banned the purchase of Iran’s oil. But ironically, the nation’s crude is still being received by China.
However, it is under “bonded storage,” at several Chinese ports as this oil doesn’t cross local customs or show up in the nation’s import data. So technically, there is no breach of sanctions.
Economists believe that such stored oil has the potential to push down global prices. But that will only happen if ‘Chinese refiners decide to draw on it, even as Organization of Petroleum Exporting Countries and allies curb production amid slowing growth in major economies.’
This will keep Iran in business as it can continue to pump and move its oil nearer to potential buyers.
Further reports confirm that currently, at least ten very-large crude carriers and two smaller tankers owned by the state-run National Iranian Oil Company and its shipping arm are sailing toward China or idling off its coast.
The vessels have a combined carrying capacity of over 20 million barrels.
Putting crude into bonded tanks has other advantages for China. For one, it can avoid having to tie up part of its tanker fleet by storing the oil at sea for months at a time. Should the Iranian crude leave bonded storage and end up in the market it could pressure oil prices, according to Bank of America Merrill Lynch.
West Texas Intermediate plunged more than 20% from late April to mid-June as the U.S.-China trade war intensified.
There are currently no exemptions issued to any country for the import of Iranian oil, and any nation seen importing cargoes from the Persian Gulf producer will be in breach of sanctions, according to a senior Trump administration official, who asked not to be identified because he wasn’t authorized to speak publicly about the matter.
Political analysts believe that a further escalation in U.S. tariffs on Chinese goods could jointly drive global economic growth a lot lower and encourage Iran-China cooperation.