The tightened U.S. sanctions on Iranian oil flows under the Trump Administration’s renewed maximum pressure campaign have created chaos in Iran’s oil exports to its single biggest buyer, China.
However, Iranian exports to China, which buys around 90% of the Islamic Republic’s oil, continue as traders and middlemen rearrange tanker flows and increase ship-to-ship transfers, especially offshore Malaysia, vessel-tracking analysts say.
The latest U.S. sanctions have managed to disrupt trade as the number of non-sanctioned tankers is steadily falling. But exports from Iran to China continue at a rate similar to those of the past few months—at least for now.
China has been the biggest beneficiary of Iranian oil still reaching the market. Most of Iran’s oil has been shipped to China since 2018 when President Donald Trump re-imposed sanctions after withdrawing the U.S. from the so-called Iranian nuclear deal during his first term in office.
China’s private refiners are key buyers of Iran’s sanctioned crude, and the two sides have established a trade relationship that is favorable for both. Iran gets to sell its crude that nearly everyone else shuns, while China’s independent refiners, the so-called teapots, get cheap oil at discounts.
In restoring the “maximum pressure” campaign, President Trump directed the Secretary of State to “implement a robust and continual campaign, in coordination with the Secretary of the Treasury and other relevant executive departments or agencies, to drive Iran’s export of oil to zero, including exports of Iranian crude to the People’s Republic of China.”
China doesn’t recognize or follow U.S. sanctions, and ports and importers have been working in recent weeks to find workarounds.
These worked in February to stabilize sanctioned oil flows to China, according to Vortexa.
“To circumvent the restrictions, independent oil terminals at key ports outside Shandong—such as Dalian, Shanghai, Zhoushan, and Huizhou—began accepting sanctioned oil, including cargoes delivered by sanctioned tankers,” Emma Li, senior market analyst at Vortexa, wrote last month.
Stranded Iranian cargoes have offloaded their crude at Shandong, the key import terminal for China’s independent refiners, after ship-to-ship transfers.
At least eight supertankers—either recently added to the dark fleet or idle since early 2024—have surfaced to facilitate Malaysia-to-China STS transfers, Vortexa’s Li noted.
As a result, China’s Iranian crude discharge rebounded in February and Shandong-bound volumes exceeded the 2024 average at 1.1 million barrels per day (bpd) between February 1 and 20, according to Vortexa data.
Going forward, the growing number of oil tankers sanctioned by the United States is limiting the availability for Iran to ship its crude as Tehran is in more intense competition with Russia and Venezuela for vessels not yet blacklisted by the U.S. Treasury, analysts say.
Just as China appears to have found some workarounds for the early February sanctions, the U.S. designated additional tankers and traders at the end of February and vowed to use all available tools to cut off Iranian trade.
“The United States will use all our available tools to target all aspects of Iran’s oil supply chain, and anyone who deals in Iranian oil exposes themselves to significant sanctions risk,” Secretary of the Treasury Scott Bessent said.
Iranian oil exports haven’t collapsed as those who trade in Iranian oil are looking at various workarounds and more ship-to-ship transfers.
Iran’s oil exports are unlikely to be entirely shut down.
“There will always be some leakage under any form of sanctions,” Ja Ian Chong, associate professor of political science at the National University of Singapore, told Bloomberg.
Sanctions are typically designed to make the trade so uneconomical that it is impractical to do it and change the behavior of buyers and sellers, the professor said.
The U.S. hardly expects “zero Iranian oil exports” with the sanctions.
The Trump Administration, however, is actively seeking to collapse these exports – currently estimated at 1.5 million bpd-1.6 million bpd – by ratcheting up pressure on the financial system and governments in the region, which aid Iran’s oil export efforts and oil revenue collection.
“We will close off Iran’s access to the international financial system by targeting regional parties that facilitate the transfer of its revenues. Treasury is prepared to engage in frank discussions with these countries,” Secretary Bessent said at the Economic Club of New York last week.
“We are going to shut down Iran’s oil sector and drone manufacturing capabilities.”
By Tsvetana Paraskova for Oilprice.com