HMM: If Iran’s Oil Is Cut Off, China Will Pay the Price.

Iran exports around 1.7 million barrels of crude a day, less than 2% of global demand. The U.S. reimposed sanctions on Tehran’s oil exports in late 2018, a few months after President Trump withdrew from the Iran nuclear deal during his first term.

Most countries won’t touch Iran’s sanctioned crude, so Tehran is forced to sell at a discount and find covert ways to get it onto the market. It uses a “dark fleet” of tankers that sail with their transponders turned off to ship cargoes of oil.

More than 90% of Iran’s oil exports now go to China, according to commodities data company Kpler. Most of it is bought by small Chinese “teapot” refineries clustered in the Shandong region that operate independently from state-owned oil companies. They switched to illicit Iranian oil en masse in 2022 to protect their margins.

The discount on Iran’s oil compared with a similar grade of nonsanctioned crude such as Oman Export Blend is currently around $2 a barrel, according to Tom Reed, vice president of China crude at commodity data provider Argus Media. The gap has narrowed recently because of worries that conflict with Israel and stricter enforcement of U.S. sanctions could disrupt Iranian supply. The discount has been wider in the past, averaging $11 in 2023 and $4 in 2024.

With few alternative buyers for Iranian oil, Chinese refineries have leverage. Last year, an official from Iran’s Chamber of Commerce characterized the trading relationship as “a colonial trap.” As the sanctioned oil is paid for in renminbi rather than in dollars, Iran has few choices about where to spend its crude earnings except on Chinese goods, reinforcing its dependency on one country.

Tiny Israel might just knock the I right out of CRINK.