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Highlights

Sanctions target network moving Iranian petroleum to China

With 201,000 b/d in imports, China is Iran's major crude buyer

US Treasury chief claims state-owned companies have ceased buying

Washington — New US sanctions aimed at shutting down illicit petroleum and petrochemical trade between Iran and China will not substantially impact China's status as the top importer of Iranian crude, with more than 200,000 b/d of illicit flows expected to continue, analysts said Friday.

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"With these new sanctions, the US is essentially mowing the lawn on illicit Chinese trade," said Henry Rome, an Iran analyst with the Eurasia Group. "US sanctions have thus far not deterred much of it, hence the need for frequent rounds of new action."

Late Thursday, the US Treasury and State departments announced new sanctions on petrochemical and petroleum companies in Hong Kong, Dubai and Shanghai for facilitating hundreds of millions of dollars in crude oil, petrochemical, and refined product exports from the National Iranian Oil Company. According to Treasury, one company, Triliance Petrochemical Co., a Hong Kong-based broker which ordered the transfer of millions of dollars in payments to NIOC for Iranian petrochemical, crude, and petroleum products shipped to the UAE and China in 2019.

The sanctions come as Iranian crude oil and condensate exports have plummeted to under 394,000 b/d in December 2019 from nearly 2.7 million b/d in April 2018, according to cFlow, Platts trade flow software data and shipping sources. Yet China remains the largest importer, taking in 201,000 b/d in December, more than half of Iran's total exports, according to Platts and shipping sources.

In recent months, a large share of Iranian oil flowing to China has been going through the UAE and Malaysia, both of which are popular hubs for ship-to-ship transfers, according to sources.

With little hope of sanctions relief in the near term, Iranian oil exports will be capped at about 400,000 through 2020, according to Paul Sheldon, chief political adviser with S&P Global Platts Analytics.

Richard Nephew, the principal deputy coordinator for sanctions policy at the State Department during the Obama administration, said Friday that this week's sanctions will do little to disrupt this trade.

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"I see this as a one-off and trade will continue," Nephew said Friday. "This is one network. There are and will be others."

Eurasia Group's Rome added that Thursday's sanctions were the Trump administration's effort "to balance a desire to pare down trade with Iran while also steering clear of Chinese majors."

Last week, Treasury Secretary Steven Mnuchin said Chinese state-owned companies have ceased buying Iranian oil, suggesting that only independent refiners continue making such purchases. He added that the US was "working closely with [China] to make sure that they cease all additional activities [with Iran]."

Mnuchin said that Treasury and State Department officials have met with Chinese officials to discuss curtailing imports of Iranian oil.

In September, the US Treasury Department sanctioned six Chinese entities and their top executives, including two affiliates of Cosco Shipping, for trading oil with Iran in violation of US sanctions. The US previously sanctioned China's state-owned trading company Zhuhai Zhenrong and its top executive for oil trade with Iran.