Oil refiners across China are confident that flows from the Islamic Republic will continue unabated following militant group Hamas’ attack on Israel, betting Washington will seek to avoid a surge in global crude prices.
(Bloomberg) — Oil refiners across China are confident that flows from the Islamic Republic will continue unabated following militant group Hamas’ attack on Israel, betting Washington will seek to avoid a surge in global crude prices.
China’s independent processors, known as teapots, have been enthusiastic buyers of Iranian oil of late. Iran’s connections to Hamas and purported links to the surprise attack, however, could put that trade under threat. There’s a risk the White House takes a tougher stance on sanctions enforcement, reversing a looser approach which has allowed Iran to increase output by more than half a million barrels a day this year.
For now at least, several Chinese refiners and traders involved in buying the discounted crude said they did not anticipate a crackdown or any disruptions. Even with Washington under pressure to act, the Biden administration will have an eye on inflationary pressures ahead of a presidential election next year, they said, asking not to be named as they are not authorized to speak publicly.
In the past, sanctions haven’t been very effective in damping China’s enthusiasm for Iranian oil, with the crude often disguised as coming from other origins, most notably Malaysia.
This year the surge in flows has been helped by a softer approach to sanctions enforcement, as Washington and Tehran engaged in tentative diplomacy to re-establish limits on Tehran’s nuclear program. Chinese purchases of Iranian oil soared to 1.5 million barrels a day in August, the most in a decade, data intelligence firm Kpler said.
Risks remain, however. The Wall Street Journal reported on Monday that Iranian security officials helped plan the weekend’s attacks on Israel. Secretary of State Antony Blinken told NBC’s Meet the Press that the US didn’t have any evidence at the moment that Iran was directly involved. The White House is sending warships to the eastern Mediterranean.
If Iran has played a role in these attacks — directly or indirectly — there could be stricter enforcement of US oil sanctions against Tehran, said Warren Patterson, head of commodities strategy at ING Groep NV.
The beneficiary of such an escalation could be the Kremlin. Russia is already a key supplier of crude to China, though rising prices would become a major concern, the traders said.
–With assistance from Elizabeth Low.
(Updates with new chart.)
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