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Traders say that new US sanctions will slow down but not stop China from importing Iranian oil.

Traders say that new US sanctions will slow down but not stop China from importing Iranian oil.

Iranian oil shipments to China will likely fall after the new U.S. restrictions on a refiner, tankers and other vessels. This will increase shipping costs. However, traders expect buyers to find ways to continue to buy some quantities.

Washington imposed new sanctions Thursday on entities, including Shouguang Luqing Petrochemical - a "teapot" or independent refinery located in the east China province of Shandong - and vessels that provided oil to these plants, which are China's top buyers for Iranian crude.

The fourth round of sanctions against Iran's oil exports was imposed after President Donald Trump called for "maximum" pressure on Tehran in February, including attempts to reduce its crude exports.

Traders, including three who were directly involved, reported that the Iranian oil flow to China has already decreased due to higher freight costs, as previous sanctions have affected shipping capacity.

The latest sanctions on Iranian oil were not a surprise to a Chinese executive in the business. He expects more terminals or plants could be targeted.

The executive said that imports would be maintained once businesses restructured their business, such as by changing the entity for oil payments.

A second Chinese trader said that imports could be reduced as the sanctions cause private refiners to pause.

The first executive said that the freight costs for a Very Large Crude Carrier (VLCC) sailing from Malaysian waters, which is a major transshipment hub for Iranian oil to China's refining center Shandong, have more than doubled to $3 to $4 per barrel since late 2024.

Data from Kpler, an analytics firm, showed that China's Iranian crude oil imports rose to 1,43 million barrels per day (bpd) in February, up from 898,000 in January.

According to MuyuXu, a senior Kpler analyst, the volume of oil delivered in March is expected to drop sharply because of the latest sanctions.

Most Iranian oil shipments into China, which account for over 10% of the country's crude imports are rebranded as Malaysian by traders.

Brian Leisen is a commodities strategist at RBC Capital. He said: "This marks an escalation of sanctions policy. However, it's not as severe as the designation of a Chinese port."

"INDISCRIMINATE and ILLEGAL"

China, which defends the legitimacy of its trade with Iran, reiterated on Friday its opposition to unilateral sanctions that are "indiscriminate" and "illegal". It also pledged to protect Chinese enterprise rights, something which a trader claimed would comfort buyers.

According to traders, Luqing operates a refinery that produces 160,000 barrels per day. It is one of the largest regular buyers for discounted Iranian oil. This is the second teapot that the U.S. has sanctioned after Haiyou Petroleum was designated in 2020.

Luqing's phone operator did not respond to a Friday email seeking comment. Emails seeking comments from the company were not immediately answered.

In recent years, Chinese refineries have saved billions of dollars by avoiding oil from Iran and Venezuela.

A trader who deals in Iranian oil reported that a teapot operator appeared unfazed Thursday's announcement.

The trader stated that "our regular client seemed nonchalant when I translated the sanctions document into Chinese late yesterday night and continued to ask for the latest Iranian Oil Quotes."

(source: Reuters)