Iranian oil supplies to China tighten as US blockade cuts Tehran's crude exports

The US blockade of Iran's shipping has cut Tehran's crude exports, reducing offers of Iranian oil to Chinese buyers and driving up prices. Trade sources report a shift from discounts to premiums for Iranian crude, threatening feedstock for independent Chinese refiners known as teapots.

The US blockade of Iran's shipping and ports, re-imposed on July 13 after a deal to halt the US-Israeli war on Iran broke down, has sharply reduced Iranian crude exports to China. Trade sources report that offers of Iranian crude for September and October delivery have declined from July and August levels, as barrels already on the water have been sold. Prices have flipped: Iranian Light crude, typically sold at a discount of around $3 a barrel, is now being offered at a premium of about $2 a barrel over ICE Brent futures. Floating storage outside the blockade zone has fallen to about 80 million barrels from 105 million barrels before the blockade was reinstated, with only about 30 million barrels remaining in Asian waters. This squeeze threatens independent Chinese refiners, known as teapots, in Shandong province, which account for about a fifth of China's refining capacity and are the top buyers of sanctioned oil. Some teapots are already seeking alternatives, with one buying Brazil's Lapa crude and others looking at Iraq's Basrah crude. China's Iranian oil imports have dropped from a year ago, falling to 785,000 barrels per day in June, the lowest since February 2023, and further to 534,000 bpd in August. US Treasury Secretary Scott Bessent threatened Iran with the toughest sanctions in history, though Chinese refiners remain wary but not fully deterred.