Chinese Purchases of Iranian Oil: Covert Operations and Their Consequences for Russia
Despite international sanctions and official statements about halting oil supplies from Iran to China, the Middle Kingdom continues to import crude oil using complex circumvention schemes. These actions have a significant impact on the global oil market, creating challenges for other major exporters, including Russia.
How the Scheme Works: The "Shadow Fleet"
A key element of these operations is the use of aging tankers that belong to a "shadow fleet." These vessels, registered under "convenient" flags, often operate without insurance coverage and an Automatic Identification System (AIS). The primary transshipment hub is located near the coast of Malaysia, where oil is transferred from one ship to another, concealing its origin. Afterwards, Iranian crude is directed to China disguised as shipments from Malaysia, Oman, or other countries.
Financial Scale
According to analytics firm Kpler, in 2024, the volume of Iranian oil shipments to China via the "shadow fleet" reached 350 million barrels over a 9-month period. With an average oil price of $80 per barrel and accounting for sanction-related discounts of 30-35%, the total value of the shipments is estimated to exceed $20 billion. These figures not only illustrate significant trading volumes but also the enormous economic advantage for China, which is acquiring oil at a reduced price.
How This Affects Russia?
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Increased competition in the Asian market
Iran is offering oil at substantial discounts, making it attractive to China. As the primary oil supplier to the Middle Kingdom, Russia may face a reduction in its market share. In 2024, China purchased about 90.4 million tons of oil from Russia (+2.2% year-on-year), but increasing competition could hinder further growth. -
Price pressure
The rise in illegal shipments creates an excess supply, which could lower global prices. For Russia, this means the need to reassess its pricing policy to maintain its position in China. -
Political risks
Iranian sanction circumvention schemes are heightening geopolitical tensions. Should the international community intensify scrutiny on shadow supplies, it could lead to stricter sanction pressures that would also affect the Russian oil sector. -
Potential sanctions against China
If the U.S. or EU decide to intensify pressure on China for illegal imports of Iranian oil, it could impact supply chains, including Russian oil, increasing costs and risks for exporters.
What Should Investors Pay Attention To?
- Oil price dynamics: Monitor changes in prices in Asian markets, where rising supply may exert pressure on quotes.
- Changes in Russia's market share in China: A decline in exports to China could impact the revenues of Russian oil companies.
- Political climate: Increased international scrutiny and new sanctions could affect supply stability and profitability.
Insights from Sergey Tereshkin, Founder of Open Oil Market
“The current situation highlights the importance for Russia of a strategy for diversifying export markets and optimizing logistics. We must leverage this time to strengthen our positions in friendly nations and actively promote Russian energy products in alternative markets. For investors, this presents a challenge that requires assessing political and economic risks. However, within this instability, there are opportunities, especially if Russia enhances cooperation with partners and offers competitive conditions for long-term contracts.”
China’s circumvention schemes with Iranian oil not only demonstrate the complexities of the global oil market but also underscore the necessity for Russia to respond more flexibly to challenges and seek new growth opportunities while strengthening its positions in the global energy markets.
