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Millions of barrels of Iranian crude are sitting in Chinese ports

Millions of barrels of Iranian crude are sitting in Chinese ports

Iranian oil tankers have been quietly offloading their supply into Chinese ports, according to ship tracking data, despite U.S. sanctions on crude from the Islamic Republic.

These flows, which experts say show no sign of stopping, could seriously disrupt U.S.-China trade talks as well as oil markets if Beijing decides to actually use them.

Estimates as to the volume of Iranian crude that’s made its way to China between last January and May vary from 12 million to 14 million barrels, an amount that market watchers say could dramatically impact the price of oil.

“If China were to aggressively purchase Iranian crude oil and/or draw down on these stored volumes, oil prices would likely fall by $5.00 to $7.00 per barrel,” John Kilduff, founding partner of energy trading firm Again Capital. “It would be a meaningful outlet for Iranian supplies that have been severely crimped by the sanctions.”

Stephen Brennock, an analyst at PVM Oil Associates, agrees. “It’s fair to assume that global oil prices would come under pressure if China decided to draw on the Iranian oil stored in its ports,” he said. “It would also likely trigger a harsh response from the (President Donald) Trump administration.”

But there is at least one reason Washington hasn’t sounded the alarm over these Persian barrels. China keeps them in what’s called “bonded storage,” which means the oil has not been cleared through Chinese customs and is not being used, therefore not actually violating U.S. sanctions. Kilduff estimates that another 20 million barrels are “en route, likely headed for this bonded storage.”

This benefits both Iran and China in a few ways.