China reduces oil imports from Iran from February 2012.

Context

In February 2012, it was reported that China would significantly reduce its imports of Iranian oil. Two state-aligned Chinese oil-trading firms, Unipec and Zhuhai Zhenrong, dominate China’s imports. An industry source quoted in one February 2012 media report said that “Zhenrong volumes will be the same but there will be some cuts to the Unipec side”. Subsequently, one report suggested that Chinese investment in Iran had dropped by 87%, from around US$3 billion in 2011 to only US$400 million in 2012. In 2013, China’s crude oil imports dropped a further 2.2%. It is thought that this drop was not larger only because a Taiwan-owned business named Dragon Aromatics, operating in mainland China, was importing Iranian oil beyond the direct control of Beijing.

The context here is Beijing’s response to US and EU sanctions in 2012, with Western powers also pressuring Japan and South Korea to reduce oil imports from Iran. It is possible that China would have faced financial measures from Washington if it had not significantly reduced its oil imports from Iran. An additional factor that may have contributed to this decision is reported bargaining between Beijing and Tehran over price – with China reportedly eager to put pressure on Iran to reduce prices.

Impact

Prior to this action China was Iran’s largest trading partner, Tehran’s single largest oil export market – and seen as an alternative market to replace exports displaced by Western sanctions. In 2011, China imported 555,000 barrels of crude oil per day from Iran. In 2012 and 2013 this dropped to 438,000 and 430,000 barrels per day, respectively, before returning to normal levels (550,000 per day) in 2014.

Responses  

i) Iranian government and industry responses.

In April 2012, the head of international affairs at the National Iranian Oil Company (NIOC), Mohsen Ghamsari, denied that China had reduced its imports of Iranian oil, telling press that “Iranian crude exports to Chinese refineries have not decreased at all in the current year” and that “[o]n average we are exporting about 500,000 barrels of crude to China per day”.

(ii) Chinese government and industry responses

The Chinese government never officially admitted that oil imports from Iran had been reduced. On March 21, 2012, the spokesman for the Ministry of Foreign Affairs was asked whether China would consider reducing oil imports from Iran given the U.S. threatened to impose sanctions if China failed to reduce oil imports by the end of June 2012. The spokesman did not respond to the question directly. Rather, he highlighted that China’s oil imports from Iran were absolutely lawful, and the US’s unilateral sanctions were unacceptable.

An unnamed Chinese government official signalled to press that the decision was economically-motivated, claiming “[b]oth in terms of supply stability and economics, Iranian oil lacks the competitive edge”, and saying that “[o]ur expectations have been raised … Because of the sanctions, our cost of doing business with Iran has been rising, from payment settlements to tanker chartering to insurances”. Media reporting suggested that Saudi Arabia and Iraq could help fill the shortfall in oil for the Chinese market.

A senior executive at Sinopec also reportedly stated that the company would not increase oil imports from Iran for the rest of 2012 to avoid any contravention against the strict US sanctions on Tehran’s oil trade.

(iii) Other states

The US approved of this decline in Chinese imports (under threat of sanctions from the US if they did not), with then Secretary of State Hillary Clinton stating that “[t]oday I have made the determination that two additional countries, China and Singapore, have significantly reduced their volume of crude oil purchases from Iran. As a result, I will report to the Congress that sanctions pursuant to Section 1245(d)(1) of the National Defense Authorization Act (NDAA) for Fiscal Year 2012 will not apply to their financial institutions for a potentially renewable period of 180 days.” China expressed opposition to these US attempts to pressure it and other states to impose measures on Iran.

Status

This measure ended in 2014, when Chinese oil imports returned to around 550,000 barrels per day. This was reportedly prompted by a relaxation of Western sanctions on Iran as part of a late-2013 agreement which accompanied negotiations over Iran’s nuclear program.

Reference list

BBC News. 2012. “China buying oil from Iran with yuan.” BBC News. May 8. Available at:

https://www.bbc.com/news/business-17988142

Chen, A. 2012. “China’s Unipec to take less Iran oil in 2012.” Reuters. February 21. Available at: https://www.reuters.com/article/world/china-s-unipec-to-take-less-iran-oil-in-2012-idUSTRE81J0RN/

Guancha. 2012. ‘Sinopec declined to import low-price oil from Iran for the bilateral relationship between China and the US’ [中石化因中美关系悍拒伊朗低价石油] 14 June 2012. Available at: https://www.guancha.cn/Finance/2012_06_14_79142.shtml.  

Harrell, P, E. Rosenberg, and E. Saravalle. 2018. “Annex: Case Studies of Recent Instances of Chinese Economic Coercion over the Last Decade.” China’s Use of Coercive Economic Measures, Center for a New American Security. 41-49. Available at:https://www.jstor.org/stable/resrep20429.8?seq=4

Hosseinian, Z. 2012. “Iran denies China cut imports of its oil – agency” Reuters. April 27. Available at: https://www.reuters.com/article/world/iran-denies-china-cut-imports-of-its-oil-agency-idUSBRE83Q0JQ/

Iran Primer. 2012a. “China Cuts Back Iran Oil Imports.” Iran Primer. June 28. Available at: https://iranprimer.usip.org/index.php/blog/2012/jun/28/china-cuts-back-iran-oil-imports

Iran Primer. 2012b. “China’s Oil Cutbacks may be only temporary.” Iran Primer. July 3. Available at: https://iranprimer.usip.org/discussion/2012/jul/03/china%E2%80%99s-oil-cutbacks-may-be-only-temporary

Keck, Zachary. 2013. “China’s Trade and Investment in Iran Plummets.” The Diplomat. March 22. Available at: https://thediplomat.com/2013/03/chinas-trade-and-investment-in-iran-plummets/

Ministry of Foreign Affairs of the People’s Republic of China. 2012. ‘Spokesman for the Ministry of Foreign Affairs, Hong Lei, held a regular press conference on 21 March 2012’ [2012年3月21日外交部发言人洪磊主持例行记者会] 21 March. Available at: https://www.mfa.gov.cn/web/fyrbt_673021/jzhsl_673025/201203/t20120321_5408688.shtml.

Reuters. 2013. “China needs big cuts in Iran oil imports to meet 2013 target.” Reuters. October 21. Available at: https://www.reuters.com/article/business/energy/china-needs-big-cuts-in-iran-oil-imports-to-meet-2013-target-idUSL3N0IB1MS/

Reuters. 2014. “China’s Iranian crude imports drop 2.2 pct in 2013.” Reuters. January 21. Available at: https://www.reuters.com/article/business/energy/china-s-iranian-crude-imports-drop-2-2-pct-in-2013-idUSL3N0KV231/

Reuters. 2015. “China’s 2014 Iran crude oil imports up 28 pct -customs.” Reuters. January 23. Available at: https://www.reuters.com/article/markets/commodities/ chinas-2014-iran-crude-oil-imports-up-28-pct-customs-idUSL4N0V126B/