Iran Raises Oil Prices For Chinese ‘Teapots’

Beijing saved significant sums by buying fuel from sanctioned suppliers and achieving large discounts.

Iran is raising oil prices for China, hampering trade between the two countries, with supplies from Tehran accounting for about 10% of Beijing's oil consumption, Reuters reported, citing trade sources and interlocutors at oil refineries.

“Buyers are still trying to find a solution because the new prices are too high. But since they have limited choice and the Iranian side is very tough, the scope for price negotiations is difficult and not in favor of Chinese buyers,” said an oil buyer from China’s Shandong province.

Against this background, oil supplies from Iran to China have decreased. In October, Beijing purchased a record 1.53 million barrels. per day, in November — 1.22 million barrels, and in December the volume of daily purchases decreased to 1.18 million barrels. Over the past week, oil reserves in Iran's floating storage facilities have increased by 2 million barrels, to 15.5 million, Kpler estimates.

A deadlock situation has developed between Iranian suppliers and Chinese buyers; how it will all end is unclear, the Chinese company, an intermediary for the purchase of oil, assessed. “Let’s wait a little and see if oil refineries are ready to accept the new price,” a Reuters source suggested.

State-owned oil refining companies in China do not purchase Iranian oil for fear of secondary US sanctions; since 2019, it has been purchased by small independent refineries, the so-called teapots, writes Reuters. “Teapots” account for approximately 90% of all Iranian oil exports; the fuel is usually passed off as oil from Malaysia or the UAE.

China has saved billions of dollars by purchasing oil at deep discounts from sanctioned producers Iran, Venezuela and Russia; these countries provide Beijing with almost 30% of its crude oil imports, the agency notes.

November oil deals were concluded at discounts of about $10 a barrel, but in early December Iranian sellers told Chinese buyers that the discounts would be cut to $5-6 below the price of Brent crude, sources told Reuters.

The Iranian side is determined to “catch up in price” with the Russian grade of ESPO oil supplied via the Eastern Siberia-Pacific Ocean pipeline, said the trade manager of an independent oil refining company. “But they (Iranians — edit.) do not fully realize that the scale of sanctions against Iranian oil is different from sanctions against Russian oil,” he added.

In the summer of 2022, Iran was forced to significantly reduce the price of its “already cheap” oil in order to compete with Russia amid international sanctions against it. As Bloomberg found out, Iranian oil then cost almost $10 per barrel lower than Brent futures. Iran did this so that its raw materials could compete with Russian Urals oil, which was supposed to arrive in China by the end of the summer of 2022.