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China Shifts to Iranian Tankers to Keep Oil Flowing

China Shifts to Iranian Tankers to Keep Oil FlowingChina Shifts to Iranian Tankers to Keep Oil Flowing

Chinese buyers of Iranian oil are starting to shift their cargoes to vessels owned by the National Iranian Tanker Company for nearly all of their imports to keep supply flowing amid the reimposition of economic sanctions by the United States.

The shift demonstrates that China, Iran’s biggest oil customer, wants to keep buying Iranian crude despite the sanctions, which were put back after the US withdrew in May from a 2015 agreement to halt Iran’s nuclear program, Reuters quoted sources as saying.

The US is trying to halt Iranian oil exports to force the country to negotiate a new nuclear agreement and to curb its influence in the Middle East. China has said it is opposed to any unilateral sanctions and has defended its commercial ties with Iran.

The first round of sanctions, which included rules cutting off Iran and any businesses that trade with the country from the US financial system, went into effect on Aug. 7. A ban on Iranian oil purchases will start in November.

Insurers, which are mainly US- or Europe-based, have already begun winding down their Iranian business to comply with the sanctions.

To safeguard their supplies, state oil trader Zhuhai Zhenrong Corp and Sinopec Group, Asia’s biggest refiner, have activated a clause in its long-term supply agreements with National Iranian Oil Company, which allows them to use NITC-operated tankers, according to four sources with direct knowledge of the matter.

They spoke on condition of anonymity, as they were not allowed to speak publicly about commercial deals.

The price for the oil under the long-term deals has been changed to a delivered ex-ship basis from the previous free-on-board terms, meaning that Iran will cover all the costs and risks of delivering the crude as well as handling the insurance, the sources said.

“The shift started very recently and it was almost a simultaneous call from both sides,” said one of the sources, a senior Beijing-based oil executive.

In July, all 17 tankers chartered to carry oil from Iran to China were operated by NITC, according to shipping data on Thomson Reuters Eikon. In June, eight of the 19 vessels chartered were Chinese operated.

Last month, those tankers loaded about 23.8 million barrels of crude oil and condensate destined for China, or about 767,000 barrels per day. In June, the loadings were 19.8 million barrels, or 660,000 bpd.

In 2017, China imported an average of 623,000 bpd, according to customs data.

Sinopec declined to comment on the change in tankers. A spokesperson with Nam Kwong Group, the parent of Zhenrong, declined to comment.

NIOC did not respond to an email seeking comment.

Iran used a similar system between 2012 and 2016 to circumvent western-led sanctions that were effective in curtailing exports because of a lack of insurance for the shipments.

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