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How China’s sanctioned oil imports are rebounding despite global pressure

by admin February 22, 2025
February 22, 2025
How China’s sanctioned oil imports are rebounding despite global pressure

It seems as though China’s imports of sanctioned oil are rebounding amid trade tensions with the US. 

Immediately after Shandong’s shipping ban and the US sanctions on tankers involved in Russian and Iranian trade, Shandong teapot refiners (the primary buyers of discounted sanctioned oil) decreased refinery runs, even during the Spring Festival travel rush preparation period, according to Vortexa. 

At the same time, Shandong’s onshore crude inventories rapidly declined, as teapots predominantly continued to use sanctioned oil despite port discharge slowdowns at state-run Shandong Port Group (SPG) terminals, said Emma Li, senior market analyst at Vortexa.

“To circumvent the restrictions, independent oil terminals at key ports outside Shandong—such as Dalian, Shanghai, Zhoushan, and Huizhou—began accepting sanctioned oil, including cargoes delivered by sanctioned tankers,” she added in an update. 

Their impact is still limited because of the relatively small storage capacity and the additional cost of transporting barrels between provinces.

Consequently, these ports have not been able to completely clear the backlog of tankers waiting offshore.

On January 7, China’s SPG had instructed its ports to ban vessels sanctioned by the US Office of Foreign Assets Control. 

In late January, Shandong Port Group transferred its stake in key terminals under Dongying Port, the primary ESPO receiving hub in northern Shandong, to private entities. 

Iranian cargoes offload into Shandong

This strategic move allowed for continued cargo discharges, including those from at least two sanctioned tankers, and resulted in increased crude inventories at Dongying Port, according to Vortexa. 

During the same period, other Shandong terminals experienced operational slowdowns.

Source: Vortexa

Although Dongying was able to quickly adapt, its ability to manage Iran’s very large crude carriers (VLCC)-dominant cargos is limited because its berths are designed for 100,000-ton-size tankers, Li said. 

Furthermore, the primary Iranian oil receiving ports complied with SPG’s ban.

The decline in Iranian crude imports into Shandong to below 800,000 barrels per day in January, the lowest since February 2023, with significant discharge gaps mid-month, was due to these constraints.

In late January, calls were made for unsanctioned VLCCs to assist in offloading stranded cargoes. 

At least eight VLCCs that were either recently added to the dark fleet or idle since early 2024 have surfaced to facilitate Malaysia-to-China STS transfers, Li said. 

As a result, China’s Iranian crude discharge rebounded to 1.3 million barrels per day between February 1-20, with Shandong-bound volumes surpassing 1 million barrels per day, slightly exceeding the 2024 average, according to Vortexa’s estimates.

Russia shifts strategy

Russia has also rapidly reestablished a non-sanctioned fleet for its primary Far East ESPO crude, allowing Kozmino Port loadings to completely rebound in February, Vortexa said.

Between January 11 and February 20, at least 17 non-sanctioned Aframax/LR2 or Suezmax tankers entered the ESPO trade, according to the ship-tracking agency. 

These tankers either diverted from other sanctioned crude routes, particularly the Russia Baltics, or shifted from clean product transport. 

This influx of vessels has facilitated a rapid recovery in ESPO exports. 

Source: Vortexa

February loadings are expected to reach 920,000 barrels per day, matching the 2024 average, and exceeding January’s 860,000 barrels a day, data from the agency showed.

“As Russia prioritises ESPO trade for its easier access to loyal Chinese buyers, more non-sanctioned vessels are ballasting towards Kozmino, reinforcing a fully non-sanctioned supply route and ensuring continued stability in Russia’s Far East crude exports,” Li said. 

The heightened focus on ESPO has drastically reduced the availability of non-sanctioned Aframax tankers for other Russian routes, causing a significant increase in crude oil volumes held on sanctioned tankers, according to Vortexa. 

This issue is particularly noticeable near ports under Western scrutiny, where sanctioned tankers are now holding unprecedented volumes of crude oil with limited chances of acceptance by Asian buyers.

China may revert to Russian urals

Although they were relatively minor buyers of Russian Urals and Arctic crude (averaging 270,000 barrels a day in 2024 compared to Indian refiners), China’s oil majors quickly secured alternative supplies after the US imposed sanctions to hedge against shipping risks.

“These purchases include late Jan/Early Feb-loading US WTI, February-loading Kazakhstan CPC Blend and UAE Murban crude, with the combined volume set to fully offset any potential losses from long-haul Russia barrels in the coming months,” Li said.

Due to Beijing’s 10% retaliatory tariff on US crude imposed in early February, China is likely to return to purchasing Russian oil barrels soon, according to Li. 

Additionally, Russian long-haul barrels remain cost-competitive due to the narrowing Brent-Dubai spread since mid-January and Middle Eastern OSP hikes.

Preliminary flow data from Vortexa suggests that Russian Urals and Arctic crude arrivals could rebound to over 350,000 barrels per day in March and April.

“While China continues to dominate Russian Far East crude imports, refiners are expected to uphold strict non-sanctioned tanker requirements despite initial US-Russia dialogue,” Li added. 

Demand for Russian long-haul barrels is likely to remain subdued, as teapot refiners still favour deeper discounted Iranian crude.

Market sentiment has not been significantly affected by concerns over a potential renewal of maximum pressure on Iran, especially after flows resumed.

However, the likelihood of a further rise in Iranian exports remains low, as current purchase costs are already testing the affordability threshold for key buyers.

The post How China’s sanctioned oil imports are rebounding despite global pressure appeared first on Invezz

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