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China's low-cost Iranian oil supply at danger from tighter Trump sanctions

China faces a squeeze on materials of cheap Iranian crude, that make up about 13% of imports by the world's greatest purchaser of oil, if Donald Trump ramps up enforcement of sanctions on Tehran after his return as U.S. president in January.

Trump, who won Tuesday's election, Edison Research study predicted, is anticipated during his second term to re-impose his optimal pressure policy of heightened sanctions on Iran's oil industry over concerns about its nuclear programme, say Iranian, Arab and Western authorities.

Such a move would raise the expense of China's imports, piling pressure on a refining sector coming to grips with weak fuel demand and tight margins, with independent plants called teapots set to be hit especially hard.

A Trump victory might see the United States impose sanctions versus Iran, thus reducing Iranian oil exports and triggering oil costs higher, Vivek Dhar, a products strategist at Commonwealth Bank of Australia, said in a note.

In 2018, during his first White House term, Trump reinstated sanctions on Iran, leading eventually to a halt in its oil exports to India, Japan and South Korea.

Late in 2019, China's teapot refiners stepped in as purchasers of reduced Iranian crude, filling a vacuum left by its state oil companies cautious of U.S. sanctions, conserving billions of dollars, and sealing China's status as Tehran's top oil market.

China and Iran have actually built a trading system that utilizes mostly Chinese yuan and a network of intermediaries, preventing the dollar and exposure to U.S. regulators, making sanctions enforcement tough.

At the exact same time, Washington has hesitated to take actions that would eliminate supply from the global market in the wake of the Ukraine war, experts state.

Vortexa Analytics, which tracks Iran's oil flows, estimated China's imports of Iranian oil at 1.4 million barrels daily during the very first 9 months of this year.

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Last month, Washington expanded sanctions on Iran, including procedures versus so-called dark fleet ships that bring its oil, which has slowed Iranian oil flows from Malaysia to China, according to a teapot trading manager who handles Iranian oil and declined to be called due to the level of sensitivity of the matter.

Even ship-to-ship (STS) activities could be hit. So the worry is more on the shipping than on banking, he stated, describing the practice of transferring Iranian freights in between ships to mask their origins.

Teapots, with some already operating at a loss, might be required to cut runs even more if more stringent sanctions enforcement by Trump on Iran in addition to Venezuela tightens materials and even more moistens margins, independent refiner sources said.

However, China's imports from Iran were up about 30% between January and October in spite of tighter sanctions, which have encouraged dark fleet shipping activity, stated Vortexa analyst Emma Li.

We may just see considerable changes when other gamers, such as banks, are added to the list, she stated.

Iranian oil is usually rebranded by dealerships as originating from Malaysia, Oman or elsewhere to circumvent U.S. sanctions.

Beijing consistently defends its oil trade with Iran as genuine and adhering with global laws.

(source: Reuters)