China-Iran, the axis is strengthened in the name of oil. And the US is watching

China and Iran are strengthening their partnership thanks to the increasingly flourishing oil trade between the two states.
In detail, China's imports of Iranian crude reached record levels in 2023, with the Islamic Republic increasing production despite the threat of further US sanctions.
Washington hawks are demanding that President Joe Biden's administration crack down on Tehran's crude oil trade as punishment for its support for Hamas, the militant group behind the attacks that triggered the current conflict with Israel.
Iran, meanwhile, has exported oil at record levels in recent months, so much so that it is once again closing in on third place among OPEC producers, and the vast majority of its barrels – well over 90% – are direct to the world's second largest economy.
The facts appear to show that the US challenge for new measures and stricter enforcement of sanctions will struggle to reduce the Islamic Republic's main source of income, thanks to China's appetite for discounted crude oil.
Not only that, traders, analysts and oil industry executives describe the now existence of expanded and sophisticated payment and transportation networks that the United States cannot reach.
China-Iran closer thanks to oil.
How much Tehran crude oil does the dragon buy? China, the world's largest crude importer and Iran's biggest customer, bought an average of 1.05 million barrels per day (bpd) of Iranian oil in the first 10 months of 2023, according to oil tracking data.
Vortexa ships reported by Reuters.
That's 60% higher than pre-sanctions peaks recorded by Chinese customs in 2017.
Imports have grown this year after Tehran increased production and offered deep discounts.
Iranian production in October rose to 3.17 million barrels a day, according to a Reuters poll, the highest since 2018, when Washington reimposed sanctions on Iran.
China's October imports from Iran are estimated to have reached around 1.45 million barrels per day, an all-time monthly record.
Giant state refiners Sinopec and PetroChina were once Iran's main customers, with investments in the country's oil fields.
However, they have stopped taking Iranian oil since late 2019, after then-US President Donald Trump reimposed sanctions on Tehran's crude exports.
Sanctions initially led to a sharp decline in flows to China, but volumes have increased as independent refiners now handle purchases.
According to Chinese traders, most of China's more than 40 independent refineries process Iranian oil.
They have little exposure to the dollar-based global financial system and have no need to cooperate with Western technology companies.
It is believed that most transactions are paid in Chinese currency.
Why the US won't stop the Iran-China oil trade Almost all Iranian oil entering China is known to come from Malaysia or other Middle Eastern countries.
Oil is transported mostly by so-called “dark fleets” made up of old oil tankers that typically turn off their transponders while loading in Iranian ports to avoid detection.
Other tactics used by such vessels include faking positions and conducting operations in locations outside authorized transfer zones, sometimes in adverse weather conditions to hide activities, raising fears among nations about potential pollution.
According to Vortexa and Kpler, these ships sometimes become traceable via satellites near ports in Oman, the United Arab Emirates and especially Malaysia, a major transshipment hub, before unloading cargoes mainly at ports in China's Shandong province.
In this scenario, US Treasury Secretary Janet Yellen had stated at the beginning of the war that new measures against Iran were possible.
Despite the inflationary risks that would arise from Russia and Iran simultaneously clamping down on oil production ahead of the election, Biden may have to increase the pressure.
It is not clear, however, whether Washington can actually do much to counter Chinese purchases.
“The trade is very sophisticated, with multiple intermediaries, making it much more difficult for the United States to sanction it.
The United States may target companies that are more public or overt in their dealings with Iran, but many of these intermediaries are small entities,” said Homayoun Falakshahi, senior oil analyst at data and analytics group Kpler.
“It's hard to know who to chase.
The United States can sanction refineries and even national oil companies like Sinopec, but that would create more of a political problem amid already tense relations,” he added.
For example, sanctions against companies in Singapore and Malaysia earlier this year for their role in facilitating the sale and shipment of millions of dollars' worth of oil and petrochemicals on behalf of a company with known links to the 'Iran, have done little to affect trade with the final destination, China.
“Trade with China is probably something the United States would struggle to shut down entirely,” said Raffaello Pantucci, a researcher at the S.
Rajaratnam School of International Studies in Singapore.
Beijing has also long used smaller financial institutions such as the Bank of Kunlun – a key Chinese conduit for transactions with Iran – to facilitate this trade and limit the exposure of larger entities with international trade ties.
More recently, Chinese importers have benefited from the development of a yuan-based alternative to Western clearing houses: a platform known as CIPS, Cross-Border Interbank Payments System, launched by the central bank to settle international credits.