BEIJING (Reuters) - Chinese refining giant Sinopec Corp, the biggest buyer of Iranian oil, has no plans to raise its Iranian crude imports for the rest of this year so as to avoid falling foul of tough U.S. sanctions on Tehran’s oil trade, a senior Chinese oil executive said.
China is the only one of Iran’s four major Asian oil buyers that could still face penalties from the United States once sanctions kick in on June 28. Washington on Monday added India and South Korea to a list of countries, that already includes Japan, exempt from sanctions.
Washington has exempted countries it considers have significantly reduced imports, in line with its aim of choking Tehran’s oil revenue to force a halt to a nuclear program the West suspects is aimed at making weapons. Iran says its nuclear work is for civilian purposes.
While China made big cuts in first-quarter imports, the U.S. is wary that Beijing might find it difficult to resist a cut-price offer if Iran tries to sell crude it can no longer export to other buyers later this year.
Sinopec has already resisted such offers, said the Beijing-based official who has knowledge of the refiner’s trading operations. “The Iranians have made some offers, but we have turned them down,” the official said, declining to elaborate.
“The economic benefits of filling some discounted Iranian oil into the national oil reserves would be too small a consideration for the state. The key concern for the Chinese government would be China-U.S. relations.”
China is Iran’s top trade partner and Beijing has publicly criticized sanctions against Tehran outside the framework of the United Nations. Still, China’s state-owned energy giants have made big investments in the United States, perhaps making them more mindful of sanctions.
China is the world’s second-largest oil consumer and is building up strategic storage across the country to deal with any surprise supply outages. Expectation in the oil market has been that sooner or later, Beijing would become Iran’s buyer of last resort and take the crude into its tanks.
But Sinopec has set its 2012 import target for Iranian crude at 400,000-420,000 barrels per day (bpd), 16-20 percent below last year’s 500,000 bpd, said the official, asking not to be named.
“One thing is for sure: within this year, there will be no increase (over the target) in Iranian oil,” he said. “The nearly 20 percent cut shows China places the relationship with the United States at the very top level. The U.S. should really appreciate what China has done and not push for more in a condescending manner.”
Sinopec more than halved its Iranian crude imports in the first quarter as it tussled with Tehran over the terms of its annual oil purchasing contract, industry sources have told Reuters. The 16-20 percent cut detailed by the official for the full year was a little more than the 14 percent annualized cut Reuters estimated after those contract disputes ended and Sinopec imports started to recover in April.
“If you compare actual loadings from April onward, you’re going to see almost the same amount of oil being lifted from Iran versus a year ago,” the official said.
A bigger potential threat to Iran’s crude flow to Asia has been posed by European Union sanctions, which ban EU firms from insuring tankers carrying Iranian crude from July 1. European insurers cover most of the world’s tankers, and Asian importers have struggled to find ways to put alternative insurance in place to keep imports flowing.
The Chinese official said the insurance ban would not pose a problem to China, although he did not detail how importers would continue importing. “So long as China wants to solve this problem, there must be a way. It won’t be a difficult issue for China. We are fully capable of sorting it out,” he said.
Among the options, Iran could deliver the crude on its own tankers, he said.
Indian state-owned refiners will halt planned imports of 173,000 bpd from Iran when EU sanctions take effect next month, unless the government allows them to use insurance and freight arranged by Tehran, industry sources said on Monday.
And Japan this week became the first country to attempt to initiate sovereign insurance once the EU sanctions start, with the government submitting a special bill to parliament to allow it to insure Iranian crude imports. South Korean government sources have told Reuters Seoul will halt Iranian imports after July, and is not yet considering state guarantees on imports.
China bought a total of 27.76 million tonnes, or 555,000 bpd of Iranian oil last year, according to Chinese customs data. The 500,000 bpd bought by Sinopec is covered by two separate contracts with the National Iranian Oil Co (NIOC) - one through Unipec, Sinopec’s trading arm, and a second via Zhuhai Zhenrong Corp, a state oil trader now on Washington’s sanction list.
The supplies include crude oil and South Pars condensate, a light oil used in petrochemicals.
PetroChina, China’s top oil and gas firm, but a smaller refiner than Sinopec, bought around 55,000 bpd last year.
Reporting by Chen Aizhu; Editing by Simon Webb and Ian Geoghegan