Iran is squirrelling millions of barrels of crude oil in Chinese ports to avoid breaching US sanctions

A China Ocean Shipping Company (Cosco) vessel seen at a port in Zhoushan, Zhejiang province, China May 9, 2019. The Iranian tanker Marshal Z is said to have unloaded its cargo of fuel oil at the port. — Reuters pic

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• Iran is squirreling away millions of barrels of oil in storage tanks at Chinese ports, avoiding a breach of US sanctions while providing its biggest buyer with a ready supply of crude.
• The oil has been placed in "bonded storage," Bloomberg said, meaning it hasn't cleared customs so isn't subject to sanctions.
• China received about 12 million barrels of Iranian oil from January through May, but only 10 million barrels cleared customs.

Iran is squirreling away millions of barrels of oil in storage tanks at Chinese ports, avoiding a breach of US sanctions while providing its biggest buyer with a ready supply of crude to tap if supply is disrupted or sanctions are lifted.

The Trump administration strengthened sanctions on purchases of Iranian oil in May when it ended exemptions for China, Japan, and other countries. The restrictions are intended to wipe out the Middle-Eastern nation's oil exports and force it to strike a deal that limits its nuclear activities and military actions.

However, Iran has continued to ship large amounts of crude oil to China, where they're placed in "bonded storage," according to people familiar with Chinese ports who were interviewed by Bloomberg. The fuel doesn't pass through Chinese customs, meaning it's not reflected in national import data and therefore avoids sanctions. 

China received about 12 million barrels of Iranian crude from January through May, significantly more than the 10 million barrels that cleared customs during that period, according to Bloomberg.

The secretive flow shows no sign of slowing. A dozen oil carriers and tankers owned by the state-run National Iranian Oil Company — with a combined capacity of more than 20 million barrels of oil — are traveling towards China or waiting off its coast, according to Bloomberg's ship-tracking data. Most of the oil already in the storage tanks is owned by Iran, but some of it represents payment to Chinese entities that have invested in Iran, Bloomberg said.

Both Iran and China benefit from the arrangement. Iran has a safe place to keep its crude, sparing it from having to use its tankers as floating storage and freeing them up for other shipments. Meanwhile, Chinese refiners have a stockpile they can quickly tap if global supply is disrupted or sanctions end.