The one question looming on the global energy horizon right now: how China, and to a lesser extent India, are reacting to the upcoming embargo on Iranian oil? The answer is a big if. And if one is able to decipher it, future crude market trends would be easier to comprehend. As the full embargo gets nearer, the ongoing trade war between Beijing and Washington is making the global crude puzzle still murkier.

Reports are now pouring in that apparently in a tit for tat China has slowed down on imports of liquefied petroleum gas (LPG) from the United States. In 2017, China bought nearly 3.6 million tonnes of American LPG, making the United States the country’s second-largest supplier of the fuel used in petrochemicals, as well as for cooking, transport and heating.

Yet, over the course of 2018, Chinese imports from the US have gone down, rather dramatically. Late in August when China imposed a retaliatory additional 25 per cent tariff on over 300 US goods, including LPG, its imports came to a virtual standstill.

“Chinese buyers, led by the wor­ld’s top tanker charterer Unipec, were reported to have stayed away from the US markets,” according to Peter Sand, the chief executive of Bimco, a ship-owners association.

Consultancy IHS Markit estimates US imports fell to barely 1m tonnes during the first eight months of 2018, down from about 2.1m tonnes for the same period last year. Last year, the United States accounted for about 20pc of China’s total LPG imports which are currently running at about $1 billion a month based on Thomson Reuters calculation.

Sand told CNBC: “China is (now) keeping its oil import data closer than ever before. Up until March, we had a good idea of where they were getting crude and that has all stopped. Now China is only releasing their import volumes. Not the sources of their imports.”

Now, this is interesting. After all, China also needs to plug gaps in its imports.

And while conjecturing continues on the issue of Chinese crude imports from Iran, a vessel carrying 2m barrels of Iranian oil discharged its crude into a bonded storage tank at the port of Dalian in northeast China last week, Reuters reported quoting Refinitiv Eikon data and a shipping agent with knowledge of the matter. This was the first Iranian oil to discharge into bonded storage in nearly four years.

In fact, as per the report, three other National Iranian Tanker Company (NITC) tankers were set to arrive in Dalian over the next week or two. China’s Iranian oil buyers, including state-owned refiner Sinopec and state trader Zhuhai Zhenrong Corp, have shifted their cargoes to vessels owned by NITC since July to keep supplies flowing once the US sanctions are re-imposed.

And signs are now emerging that India – world’s third-largest oil importer and Iran’s second-biggest oil customer – is also following suit and plans to continue buying oil from Iran despite US reservations.

India has reportedly placed orders with Iran for 9m barrels of oil for the month of November. The orders have been placed by Indian Oil Corp (IOC) and Mangalore Refinery and Petrochemicals Ltd (MRPL).

With growing speculation that oil prices may hit the three-digit mark, the Trump administration also seems to rethink its stand on ‘no waivers’. The administration officials have now been quoted as saying that they were considering waivers of sanctions to some of the major importers of Iranian oil.

And despite continuous reports of Iranian crude exports drying up – due to the US sanctions – Ellen R. Wald writing for Forbes says “new data on (Iranian) oil shipments for the month of September reveal a picture of the Iranian oil industry that is still robust.”

Wald quotes a report released on Oct 7 by TankerTrackers.com, based on data from MarineTraffic and Planet Labs, indicating that Iran has continued to export a considerable volume of oil to its major customers.

India, he says, has requested a waiver from the US to continue importing Iranian oil after the sanctions deadline, insisting it has significantly decreased imports of Iranian oil. The numbers, however, tell a different story, Wald insists.

As per the TankerTrackers report, India’s imports of Iranian oil have remained virtually unchanged between August and September. The report asserts that despite US pressure, India imported 14.97m barrels of Iranian oil in both August and September, as compared to 17.89m barrels in July. Wald hence underlines that despite reports India has not reduced crude imports from Iran.

The battle is on.

Published in Dawn, October 14th, 2018