Risk of losing access to the US financial system or having US assets frozen has not stopped the Chinese from taking a risk and buying oil from Iran and Venezuela

China, the Asian giant, doubled imports of Iranian and Venezuelan oil in 2021. The Chinese country made the most of US-sanctioned regimes in three years as the country's refineries avoided the risk of penalties to get cheap oil.

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According to data from market intelligence company Kpler, oil processors in China, the world's largest importer, bought 324 million barrels from Iran and Venezuela in 2021, which is about 53% more than in the previous year. That's the most since 2018, when China took 352 million barrels from the two nations.

China takes a risk and buys oil from Iran and Venezuela

China, particularly Chinese private refiners, benefited from the US hard line on Iran and Venezuela, continuing to buy oil from those countries long after other places in Asia stopped buying.

The risk that non-US entities would lose access to the US financial system or have their US assets frozen if found guilty of violating sanctions did not deter them.

A glut of unsold cargoes, rising international prices that make sanctioned oil relatively cheaper, and China's issuing of more oil import quotas have encouraged private refiners, known as teapots, to buy more oil from rogue states. These shipments typically do not appear in official customs data.

Interestingly, Iranian oil is up to 10% cheaper when delivered to China

“This increase was triggered by rising oil prices making Iranian oil interestingly up to 10% cheaper when delivered to China,” said Anoop Singh, head of East Suez tanker research at Braemar ACM Shipbroking, of the sanctions while trying to reach a nuclear deal with Iran.

Sanctioned oil is typically transported on old ships that would otherwise be destined for scrapyards, providing cost savings, according to Singh. Cargoes can be shipped directly from the country of origin on tankers that have been blacked out – meaning their transponders are turned off – or transferred between ships at sea to mask the origin of the oil, he said.

Oils from Iran and Venezuela are often renamed and passed off as Omani and Malaysian oils. China has not received any Iranian oil since December 2020, while imports from Oman and Malaysia have increased, official data show.

Chinese sanctioned oil imports are expected to remain elevated around current levels early this year amid slow progress in nuclear talks, Singh said.

Rising international oil prices will also make barrels from sanctioned countries even more attractive. That could be exacerbated by tax and pollution investigations into Chinese teapots, which are putting more pressure on them, said Yuntao Liu, an analyst at Energy Aspects In London.