Iran withholds crude oil supplies to China, demanding higher prices from top client

Iran’s trade and supply of oil to China has stalled after Tehran reportedly decided to withhold shipments, demanding higher prices from Beijing.

According to the Reuters news agency, citing five traders who handle Iranian oil supplies or are familiar with the transactions, Iranian sellers told Chinese buyers early last month that they were decreasing discounts for deliveries of Iranian Light crude oil in December and January down to between $5 and $6 per barrel below the benchmark.

Formerly, discounts had been set at around $10 per barrel following deals struck in November, making the new discounts far lower than previously seen.

One China-based trading executive quoted in the report said that it is “considered as an extensive default and the order to hike prices apparently came from the headquarters in Tehran, as they’re holding back supplies also to the intermediaries”.

READ: China is engaging with local actors to secure its trade and investments in the Middle East

According to one executive at a Chinese intermediary company which procures oil directly from Iran, the Islamic Republic was “holding back some shipments”, causing a “stalemate” between Chinese buyers and Iranian suppliers. “It’s not clear how things would end,” the executive said, but added “Let’s wait a bit and see if refineries are willing to accept the new price.”

A buyer based in the Chinese province of Shandong was quoted as stating that “buyers are still struggling to find a solution as the new prices are too high”. They have little choice, however, and as “the Iranian side is very tough, the room for price negotiations is difficult and is not favouring Chinese buyers”.

China – the world’s biggest crude importer – is currently the top client for Iran’s oil trade, which makes up around 10 per cent of the east Asian nation’s crude imports. The tightening of the traditionally-cheap sale of crude to China and the cutback of Iranian supplies is predicted to support global oil prices, but at the expense of squeezing profits for Chinese refiners.