Beijing has reportedly approved the release of sanctioned Iranian oil reserves, according to a security source speaking to Euractiv. This move may bring China face-to-face with new American sanctions, as Tehran seeks to liquidate large quantities of oil stored in Chinese ports to fund its military amidst the ongoing war. Iran, which is under heavy US sanctions, needs the oil revenue to support its armed forces, which have been weakened by attacks from the United States and Israel.
China's energy dependence and geopolitical risk
China's alleged willingness to take on greater risk is linked to its growing energy demand and its dependence on Iranian oil. "Iran is blocking the routes to the East, and China has no other way to buy," a Western security source told Euractiv. "They are applying pressure by attacking oil fields in Saudi Arabia, the United Arab Emirates, and Qatar, essentially neutralizing the competition."
The oil that remained trapped in China
According to the same source, Beijing has recently allowed the export of sanctioned Iranian crude oil that had been stored since 2018 in facilities at the ports of Dalian and Zhoushan. The oil had been transported there by the state-owned National Iranian Oil Company (NIOC) during Donald Trump's first term. Following the commencement of military operations against the Iranian regime on February 28 and attacks on vessels passing through the Strait of Hormuz, the US issued a 30-day waiver for Iranian oil already at sea to reduce pressure on global markets. However, this waiver did not cover the large stockpiles of approximately 25 million barrels located in Chinese ports.
The sanctions network and China's strategy
Although China is the largest buyer of Iranian oil, it often moves cautiously to avoid US secondary sanctions. According to the Western source, Beijing relies on a network of intermediaries and opaque maritime practices to conceal the origin of the oil.
US sanctions and the shadow of previous efforts
A year ago, Iran attempted to sell part of the oil stored in China through the company "Sepehr Energy," which is linked to the Armed Forces General Staff (AFGS). This move led the US Treasury Department to impose sanctions on vessels involved in the process.
The role of the IRGC and the direction of revenue
Since 2022, Tehran has developed a "shadow fleet" model of tankers, similar to the one used by Russia to hide its exports. According to the security source, although the oil originally belonged to the NIOC, control has now passed to the Islamic Revolutionary Guard Corps (IRGC), meaning that the proceeds from any sale will be directed straight to the military arm of the Iranian regime.
The value of the oil and economic losses
At current prices, the remaining reserves are estimated at approximately 1.5 billion dollars. However, the accumulated storage costs, estimated at around 750 million dollars and owed to port management companies such as PDA Energy and CGPC, significantly reduce the net revenue.
Risks for China and potential sanctions
The sale of the oil carries two primary risks: on one hand, cooperation with a regime under heavy sanctions, and on the other, the direct funding of the IRGC amidst an armed conflict with the US. To release the oil onto the market, Iran will have to transfer it from storage tanks to a "shadow fleet" of tankers and then redistribute it to mask its origin.
New American warnings
This process has already begun, according to the Western source, as Iranian managers have started loading quantities of oil onto tankers. Of the original 25 million barrels, it is estimated that approximately 10 million remain in storage. Last week, US Treasury Secretary Scott Bessent sent letters to China, Hong Kong, the UAE, and Oman regarding banks facilitating Iranian activities and warned of sanctions on involved entities. "We have told countries that if you buy Iranian oil and if Iranian money is in your banks, we are now prepared to apply secondary sanctions," stated Scott Bessent. These sanctions could even extend to Chinese port operators and storage providers who recently allowed the movement of the oil, according to the Western security source.
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