Ann Arbor (Informed Comment) – Siyi Liu and Florence Tan at Reuters report that since Trump plans on diverting 2 million barrels a day of Venezuelan petroleum to the United States, the former buyer, China, will need to replace it. Most likely, it will replace it from Iran and Russia.
They write, “China imported 389,000 barrels per day of Venezuelan oil in 2025, about 4% of its total seaborne crude imports, Kpler data showed.”
Reuters doesn’t say so, but Trump’s move may save the Iranian government. It is currently facing ever-growing protests because of the further collapse of the Iranian currency, the rial. This substantial loss in the value of the rial is also owing to lower oil prices this fall. If Iran’s government can survive until April or May, the new China demand could well fill the coffers of its treasury.
Iranian petroleum is under heavy US sanctions pressure, and has to more or less smuggle its own oil out to buyers. Among those buyers are small independent refineries in southern China around Shanghai, called Teapots. They can get away with defying the sanctions of the US Department of the Treasury’s Office of Foreign Asset Control because they do not hold assets in the US or Europe and do not do business in dollars. Treasury cannot seize their bank accounts inside China, and has no authority over non-dollar transactions. Some Iranian oil may be rebranded as Indonesian.
The Teapot refiners can buy from non-sanctioned sources such as Iraq, but they make more money if they buy sanctioned oil, since it is discounted by $10 to $15 a barrel. As I write, Brent Crude sells for $77.37 per barrel, so the Teapots can get Iranian crude for $67.37 a barrel or sometimes as low as $62.37, a substantial saving for them that adds significantly to their profits.
This past fall, Iran had been selling 2 million barrels per day (BPD) to China. In December, Iran produced 3.5 million bpd, but analysts believe Iran has the capacity to produce more if the demand is there. That is, Iran could probably produce an extra two or three hundred barrels a month, replacing a significant portion of the Venezuelan exports that will now go to the US instead of to China. Sanctioned Russian oil could take up the remaining slack.
This substantial gain for the Islamic Republic, however, will only help it weather the current political crisis if it manages to survive until April or May, when the Teapots plan to make their first purchases of Iranian petroleum. A lot of their Venezuelan orders are still on the high seas on their way to being delivered.
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