What are the reasons for the faltering oil trade between Iran and China? What are the implications for the markets?

Iranian oil exports to China are expected to return to their levels (Al Jazeera)

TEHRAN (Reuters) - Oil markets are awaiting the outcome of a faltering Iranian crude export to China, at a time when prices have been almost in place since the start of the year, amid regional tensions and monitoring of the performance of global economies.

More than two years after the signing of the strategic document between Tehran and Beijing for 25 years, Reuters last Friday quoted sources in the trade and refineries sector as saying that "the oil trade between China and Iran has faltered as Tehran withholds shipments and demands higher prices from its largest customers, reducing cheap supplies to the world's largest crude importer."

Lower supplies of Iranian oil, which account for about 10 percent of China's crude imports, which hit a record high in October, could support global prices and put pressure on Chinese refinery profits.

Conflicting reports

Iranian officials did not comment on the report, but the official Islamic Republic News Agency (IRNA) was quick to deny the decline in Iranian oil exports to China, through the head of the Iran-China Joint Chamber of Commerce, Majid Reza Hariri, who described the cuts that Iran offers China in the sale of oil as "secrets."

Hariri stressed that despite the US sanctions on Iranian oil, Tehran's oil exports to China are the highest ever, and said that it is not correct to disclose details due to foreign sanctions.

For its part, the newspaper "Hamshahri" of the Tehran municipality published a report saying that "contrary to the Reuters report, Iranian oil exports to China rose significantly during the last months of last year," and that "China's purchases of Iranian oil amounted to 1.2 million barrels per day during last December."

This comes about 4 months after the Kepler Institute for Tracking Oil Shipments reported last summer that Iran's oil exports to China rose to 1.5 million barrels per day in August, the highest level in nearly a decade.

Declining supplies

For his part, the head of the Union of Oil, Gas and Petrochemical Exporters, Hamid Hosseini to "Al Jazeera Net" the validity of reports on the faltering flow of his country's oil to its ally China, after it reduced the discount on its oil twice since the past five months worth about $ 4 per barrel each time.

Hosseini added that it intends to reduce discounts again in the coming short period by about $4, describing the decline in China's purchases of Iranian oil in the short term as "normal."
But al-Husseini predicted that his country's oil sales to China would return to what they were due to the lack of alternatives to Chinese suppliers, as small private companies buy this crude, reaping huge profits from it from cuts in Iranian export prices.

Causes and objectives

Al-Husseini attributed the reason for the Iranian move to Tehran's estimates on oil prices in the coming period, given the exit of Venezuelan oil from the market, security tensions in the Red Sea, and global crude prices.
In addition, the Iranian budget deficit, according to Al-Husseini, requires increasing state incomes and working to bridge the gap and finance the deficit by raising the prices of its oil sales, stressing that his country's estimates indicate the possibility of "undermining the ability of the dollar" during the new year, which prompted Tehran to raise its oil prices, according to him.

The Iranian official expected demand for Tehran's oil to rise during the new year due to the gap in the production of the Organization of the Petroleum Exporting Countries (OPEC) and the International Energy Agency's expectations of the growth of global demand for oil, denying his country's intention to export its surplus oil to countries that host transcontinental refineries in which Iran has invested in the past years.

"Smart move"

For its part, the Iranian news agency "Energy Press" described Tehran's decision to reduce discounts on its oil sales to China as a "smart step," stressing that the decline in Iranian oil supply would contribute to raising global oil prices.

The agency announced, in its report entitled "Stopping oil exports to China, the healthiest oil decision for the government", that Iranian oil sales to China jumped last December to more than 1.8 million barrels per day, due to "increasing Iranian oil reserves on the surface of the seawaters," noting that the total discounts on oil sales to China amounted to the past nine months of $ 4.2 billion.

Iran was forced to offer deeper discounts following Western sanctions on Russian oil exports following the Russian-Ukrainian war, according to the Energy Press report, which considered Russian oil a competitor to its Iranian counterpart in China, and revealed high expenses for delivering Iranian oil to Chinese suppliers, due to the need to deliver it indirectly through a third country such as Malaysia.

While China saves billions of dollars by buying oil at a significant discount from sanctioned producers, led by Iran, the latter is negotiating with Chinese companies to trade Iranian oil for housing projects in the country, which has been suffering from a decades-long housing crisis.

Source : Al Jazeera + Agencies