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China, Iran Solve Oil Payments Problem

Iran and China have found a way for China to continue buying Iranian crude and pay for it without risking a U.S. sanction breach, an Iranian official said, as quoted by Fars News.

"A Chinese bank will start its banking exchanges with the Iranian side on December 2," the head of the Iran-China Chamber of Commerce, Asadollah Asgaroladi said, adding "The Chinese side is due to introduce its second bank for exchanges with the Iranian side in a month." Sales of crude will begin next week, Asgaroladi also said.

China had a special bank dedicated to handling payments for Iranian oil during the international sanctions against Tehran earlier this decade, so finding ways around sanctions is hardly new.

The country is Iran’s biggest crude oil buyer and has repeatedly stated it will not suspend imports regardless of sanctions. However, state refiners were reported to have stopped buying Iranian crude ahead of the U.S. sanctions, likely in a bid to score a waiver with Washington because they have exposure to the U.S. financial system and if found to violate the sanctions they would have suffered negative consequences.

Indeed, China was one of the eight major Iranian oil importers that were granted six-month sanction waivers, with Washington allowing it to continue buying Iranian crude at a rate of 360,000 bpd. That’s a lot less than Chinese refiners imported before, but state companies also have rights to production from fields in Iran where Chinese companies have stakes, so they will probably be getting more than that.

Related: Oil Falls On Crude Inventory Build

China’s oil imports from Iran increased by 4.1 percent annually to average 631,556 bpd between January and September, and Tehran was the fifth-largest oil supplier to the world’s top oil importer, official Chinese data shows.

After somewhat reduced import volumes in September, China’s oil intake in October and November is seen rebounding, according to trade flow data from S&P Global Platts.

Last month, Iran also sent around 22 million barrels of crude to one of China’s biggest ports, Dalian, according to a Reuters report citing tanker-tracking data. Dalian is a major oil hub in China and Iran has used storage facilities at the port to keep crude during the previous international round of sanctions against Tehran. The usual rate of Iranian crude oil cargoes going into China has been between 1 million and 3 million barrels monthly.

By Irina Slav for Oilprice.com

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  • Mamdouh G Salameh on November 28 2018 said:
    China and Iran already have the petro-yuan for settling their oil transactions. However, if China had a special bank dedicated to handling payments for Iranian oil during the international sanctions, the more the better.

    It is high time for you, Ms Slav, to note that China doesn’t need a waiver from the United States to continue buying Iranian crude. China is an economic superpower in its own right and a nuclear power to boot. It is not Djibouti. It will defy US sanctions on Iran at well.

    Furthermore, the whole US sanction regime is at the mercy of China and the petro-yuan. China could singlehandedly nullify US sanctions by buying the entire Iranian crude oil exports estimated at 2.2 million barrels a day (mbd) and paying for them in petro-yuan. For the time being, China has been slowly increasing its purchases of Iranian crude to 632,000 barrels a day (b/d). But if no breakthrough is achieved over the escalating US trade war on China during the coming meeting this month between President Trump and the Chinese leader, you can bet that China will just do exactly that in retaliation against the US.

    China is Iran’s biggest customer accounting for 35% of all Iranian crude oil exports.

    Dr Mamdouh G Salameh
    International Oil Economist
    Visiting Professor of Energy Economics at ESCP Europe Business School, London

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