China is trying to force Iran to reduce oil price

Strong trade relations between China and Iran seem to have a crack. In recent months, Beijing has reduced almost half of the purchases of Iranian oil, but it’s not because of a tightening of economic sanctions against Tehran from the international community. Analysts believe that Beijing is trying to get more favorable terms of the contract from the supplier.

In recent weeks, China has reduced the imports of Iranian oil, placing its regional partner in a difficult position. Until recently, Beijing has imported about 20% of Iran’s oil, but since January the volume of purchases has greatly decreased – right on 285,000 barrels per day, according to Reuters.

Temporary alternative to the Iranian oil comes from Saudi Arabia, which since October last year increased its production 360,000 barrels daily. According to Reuters, everyday about 200 thousand barrels of the increased production go to China. According to many market participants, Chinese commodity broker Unipec (a subsidiary of Sinopec) was able to increase supplies from Saudi Arabia. The prices for Saudi oil continues to stay at a very comfortable level for the PRC.

Moreover, Beijing has the capacity of getting supply from different sources. It has got a few alternatives of Iranian oil. In particular, in March China should get the supply of Russian crude from ESPO total of 3.65 million barrels., As well as the supply with crude oil from Urals. Among other alternative energy sources of Iranian oil was gas condensate from the north-west shelf of Australia and the Timor Sea.

Experts believe that such actions of the PRC is trying to gain an advantage in discussing the new long-term contracts for the supply of oil. “Realizing that the number of buyers of Iranian oil is reduced, Beijing began to pressure on Tehran to provide a long-term contracts in lower price. Of course, the discount is unlikely to be very large, but given the volume of trade, China can save a lot.” said the analyst Samual Sizuk from IHS Energy.

Nevertheless, Tehran understands very well that Beijing will not totally abandon the Iranian oil. In practice, further increase in production in Saudi Arabia in the event of a crisis can lead to unpredictable consequences on the global energy market. “If Saudi Arabia is fully replace Iranian oil imports from the structure of China, there will be almost no free reserves, which can quickly enter the market in the event of war, natural disaster or other force majeure. This imbalance is very dangerous, Beijing is unlikely to take such risks, “- said Mr. Sizuk.