Chinese state-run firms compete for Iranian crude under US exemption: sources

Chinese state-owned refineries are competing for Iranian crude oil allowed under the US exemption, while barrels remaining in Southeast Asia with origin certificates other than Iran are expected to continue to be acquired by China's independent refiners, according to sources from the state-owned and independent sectors.

On March 20, the Trump administration temporarily lifted sanctions for 30 days on the purchase of Iranian oil at sea, aiming to reduce elevated oil prices resulting from the war in the Middle East.

"The process is already being pushed forward intensively, and we are working hard to compete on price," a Beijing-based trade source with a state-owned oil company told Platts on March 21 in response to Trump's exemption.

Zhao Dong, vice president of Sinopec, also said during a press conference on March 23 that the availability of the Iranian cargoes is limited and the window is too short. "We have the legal department thoroughly assess the legal risks," Zhao said. "Only when we are certain there are no risks and resources are secured do we proceed with compliant operations."

According to S&P Global Commodities at Sea, about 69.28 million barrels of Iranian crude and condensate were on the water as of March 20. Of this, about 25.9 million barrels were in the Persian Gulf, 6 million barrels in the Arabian Sea, 5 million barrels in the eastern Indian Ocean, 28 million barrels in Southeast Asia and the remaining 3.3 million barrels in the Far East.

"The state-run companies must compete with Indian refiners for those barrels located between the Strait of Hormuz and the Strait of Malacca," said a Shandong-based trader with an independent refinery.

Indian refiners are expected to be strong competitors for Iranian crude due to their more favorable location, given the short timeframe, said a second Beijing-based source with a state-owned oil firm, adding that one month is a tight window for Chinese buyers to complete the necessary paperwork and arrange delivery.

General License U authorizes the sale, delivery or offloading of crude oil or petroleum products of Iranian origin, loaded on any vessel on or before 12:01 am Eastern Daylight Time, March 20, through 12:01 am Eastern Daylight Time, April 19.

Therefore, "if there are Iranian barrels flowing to the state-owned sector, the volume won't be big," a Hong Kong-based analyst said.

Sellers prefer transactions to be conducted in yuan or UAE dirhams, avoiding the US dollar, according to traders.

US Treasury Secretary Scott Bessent said on X March 20 that the US will continue to maintain maximum pressure on Iran and its ability to access the international financial system.

STS barrels

Barrels that have completed ship-to-ship operations and received origin certificates from Malaysia or Indonesia will be sent to the Chinese independent sector, also known as teapot refineries, according to the trader.

A Shandong-based independent refiner echoed this sentiment, stating that regular buyers are likely to avoid ship-to-ship cargoes accompanied by origin certificates issued by countries other than Iran, as it remains unclear whether these are exempt from the US exemption.

General License U, issued by the US on March 20, authorized the loading of crude oil or petroleum products of Iranian origin onto any vessel.

Traders typically conduct STS operations in Southeast Asian waters to obtain new origin certificates, thereby circumventing US sanctions before delivering the cargo to China.

"Of course, these shipments can also be exchanged for Iranian certificates of origin, but this may leave a stain on the transaction chain and create legal risks," a Dongying-based trader said.

The Dongying-based trader said offers for Iranian Light cargoes had flipped to a premium of around $3-$4/b against ICE Brent Futures on the morning of March 23, on a DES Shandong basis, from a discount of about $1-$2/b prior to the exemption.

Late last week, offers for those Iranian Light barrels stored in bonded tanks at Chinese ports were at discounts of around $7-$8/b against ICE Brent Futures, while cargoes on water were at discounts of around $1-$2/b on a DES basis, according to market sources.

"We would prefer to wait for a price decline, avoiding to competition," said a second independent refinery source.

Currently, Chinese independent refineries account for almost all Iranian crude exports, as they are less exposed to the international financial system.

Over January-February, the independent refineries imported 1.38 million b/d of Iranian crude, rising from 1.2 million b/d during the same period in 2025.