Iran Floods Global Markets With Cheap Oil as Saudi Arabia Cuts Output

Wall Street Journal-July 6th2023

Iran’s oil exports have hit a five-year high in recent months as the country sells more to China and other countries, adding large volumes of discounted crude to a global energy market already struggling amid concerns over demand.

The surge in Iran’s oil supply threatens to upend efforts by Saudi Arabia and other major crude producers to prop up prices by cutting output. Oil’s value has fallen by about a fifth since late last year on expectations of a slowing global economy and a glut of cheap Russian cargoes.

It also shows how Iran is increasingly circumventing U.S. sanctions as the Biden administration quietly resumes talks with Tehran in a bid to win the release of American prisoners held by the Islamic Republic and curb its growing nuclear program.

Iran’s oil shipments amounted to about 1.6 million barrels a day on average in June and May, according to commodity-data providers Kpler and Petro-Logistics, more than double the level of about a year ago and the highest since 2018, when the reimposition of U.S. sanctions caused a slump.

While the scale and final destination of Iran’s oil sales are difficult to gauge, given their often covert nature, data from several firms monitoring the global energy trade indicate that China remains its top customer. Beijing directly imported 359,000 barrels a day of Iranian oil in May, up from about 266,000 barrels in the same month last year, according to Kpler. Industry watchers say Iran’s actual sales to China are likely much higher and include oil transshipped through other Asian and Middle Eastern countries.

China has long said it doesn’t follow U.S. sanctions on Iran but has rarely disclosed data on oil imports from the Islamic Republic since Washington reimposed sanctions on the country.

Among the other top buyers of Iranian crude are Syria and Venezuela, both of which are under American sanctions. Iran is also seeing growing interest for its oil from other buyers in Latin America and Africa, Iranian traders say.

Iranian oil officials say the country is offering a discount of about $30 a barrel compared with its Persian Gulf rivals, including Saudi Arabia, allowing it to compete with cheap Russian oil.

For China, the supply of crude from Iran and Russia has allowed Beijing to hoard cheap oil as insurance in case the economy kicks into a higher gear and crude prices rise. Beijing added about 1.77 million barrels a day to its inventories in May, the most since July 2020, according to oil-data-analytics firm Refinitiv Eikon.

Iran is a member of the Saudi-led Organization of the Petroleum Exporting Countries but its output quota within the cartel is suspended due to the U.S. sanctions. As it ships more oil, Tehran is undermining Riyadh’s attempts to keep prices higher by limiting production.