Strong Chinese demand keeps Iranian oil flowing

• 1.8m bpd of crude exported
• Chinese refiners are main buyers
• Iran exempt from Opec+ cuts

Iran’s refining facilities and oil storage did not sustain any damage from Israel’s strikes on Friday, according to the National Iranian Oil Refining and Distribution Company.

Israel targeted its nuclear facilities, ballistic missile factories and military commanders at the start of what it warned would be a prolonged operation to prevent Tehran from building a nuclear weapon.

Iran, the third largest producer in the Organization of the Petroleum Exporting Countries (Opec), extracts about 3.3 million barrels per day (bpd) of oil, or around 3 percent of global output.

Iran’s oil production was at its peak in the 1970s with a record output of 6 million bpd in 1974, according to Opec data. That amounted to over 10 percent of world output at the time.

In 1979 the US imposed the first wave of sanctions on Tehran and since then the country has been the target of several waves of US and European Union sanctions.

The US tightened sanctions in 2018 after Donald Trump exited a nuclear accord during his first presidential term. Iran’s oil exports fell to nearly zero during some months.

Exports rose steadily under Trump’s successor, President Joe Biden, with analysts saying sanctions were less rigorously enforced and Iran had succeeded in evading them.

Iran is exempt from Opec+ output restrictions.

Iran’s crude exports have risen to a multi-year high of 1.8 million bpd in recent months, the highest since 2018, driven by strong Chinese demand.

China says it does not recognise sanctions against its trade partners. The main buyers of Iranian oil are Chinese private refiners, some of whom have recently been placed on the US Treasury sanctions list. There is little evidence that this has significantly impacted flows from Iran to China.

Iran has for years evaded sanctions through ship-to-ship transfers and hiding ships’ satellite positions.

FGE consultancy says Iran refines about 2.6 million bpd of crude and condensate and exports 2.6 million bpd of crude oil, condensate and refined products.

The country also produces 34 billion cubic feet of gas per day, according to FGE, accounting for 7 percent of global production. All gas is consumed domestically.

• Seaborne oil exports from Iran to China hit record levels
• Despite Trump, China still has a big thirst for Gulf oil
• Oil markets are vulnerable to Trump’s turbulence

Iran’s hydrocarbon production facilities are primarily concentrated in the southwest, in the Khuzestan province for oil and in the Bushehr provinces for gas and condensate from the giant South Pars field.

It exports 90 percent of its crude via Kharg Island.

Analysts say Saudi Arabia and other Opec members could compensate for a drop in Iranian supply by using their spare capacity to pump more.

With a number of producers in the group currently in the process of raising output targets, their spare capacity is becoming more strained.