Iran ready to slash oil prices to counter Russia’s growing sales to China

SINGAPORE – Iran is ready to cut prices of its sanctioned crude stored on ships anchored in international waters just off Singapore, in a bid to defend its market share in China, industry sources tell The Straits Times.

Teheran faces fierce competition from Russia, which has in recent months emerged as the top crude oil supplier to China, according to data by Refinitiv, a unit of the London Stock Exchange Group.

The Straits Times understands that Iran is offering the crude in tankers anchored in Malaysia and Indonesian waters at discounts of around US$5 to US$7 to Russian cargoes.

“The amount of Iranian oil sitting on water in Asia is a good indication of how optimistic Teheran might have been over the revival of the nuclear deal,” said Ms Vandana Hari, founder of Vanda Insights, a provider of global oil markets macro-analysis.

“Trying to get rid of it by offering steep discounts is the clearest signal that it has given up the hope of being relieved of US sanctions, at least for the time being.”

Recent negotiations with members of the European Union to revive a 2015 nuclear deal first made with global powers fell through earlier this month, with officials saying the agreement – known as Joint Comprehensive Plan of Action (JCPOA) – is on hold.

The aim of the JCPOA is to keep Iran from expanding its nuclear programme, which many in the west suspect is for the sole purpose of developing nuclear weapons.

Before Russia invaded Ukraine in late February, around half of Russia’s crude and petroleum product exports went to Europe, according to the International Energy Agency.

Now Russia – whose oil is shunned by the EU – is the third largest supplier of crude oil to Asia after Saudi Arabia and the United Arab Emirates, after it began to divert shipments elsewhere at discounted rates.

Russia has become the largest supplier to China, having sold close to 1.74 million barrels per day in August, representing 20 per cent of that nation’s market.

According to Ms Emma Li, senior analyst at data intelligence firm Vortexa, Iranian oil in ships anchored off Malaysia and Indonesia appears to be moving to China at a much slower rate because of the Russian manoeuvres.

Demand from China has also taken a hit from its zero Covid-19 strategy which has resulted in local lockdowns.

Ms Li also noted that demand for sanctioned Venezuelan crude appears to be flowing into China at a much quicker pace and more frequently.

China has not purchased Venezuelan crude directly from the producer since 2019 after Washington tightened sanctions on the South American exporter over various crises there. But oil continued to find its way to China via traders who rebranded the fuel as Malaysian.

But last month it was reported that China had tasked a state company to ship millions of barrels of Venezuelan oil, as part of a deal to offset Caracas’ billions of dollars of debt to Beijing.