Malaysia's oil exports to China surge 12-fold as Iranian oil is rebranded

Chinese customs data reveals that in July, Malaysia exported 1.53 million barrels of oil per day (mb/d) to China, a figure that has increased 12-fold since July 2018, when the United States began imposing sanctions on Iran.

To bypass these sanctions, Iran rebrands much of its oil exports to China through international brokers, particularly from Iraq, Oman, the UAE, and Malaysia, delivering it to private and small Chinese refineries known as "teapots" under the guise of these countries. The record-breaking export of 1.53 mb/d of Malaysian oil to China is particularly noteworthy, as it is three times Malaysia's total oil production.

Although this method has increased Iran's daily oil exports from around 350,000 barrels in 2019 to 1.5 million barrels this year, the costs of circumventing sanctions for Iran have also been significant. The volume of oil exports and Iran's customs data on oil revenues indicate that last year, one-fifth of the country's oil revenue was lost in the process of bypassing sanctions, and this year, the loss of oil revenue has been over 11%.

Last year, Iran offered a discount of $13 per barrel on its oil exports, and this year, the discount is $6. The reason for the reduced discount on Iranian oil is that Russia is selling its oil to China at nearly market prices, whereas last year, it offered even greater discounts than Iran.

In addition to discounts, a substantial amount is also wasted in carrying out the illicit shipments through intermediaries, but it is difficult to be certain about the amount. Some have said in the past that perhaps close to half the oil export price is lost due to discounts and expenses.

Bloomberg recently reported that "Iranian Light was last offered at a discount of $6 a barrel to ICE Brent," compared to a discount of less than $1 for comparable crude from Russia.

China's imports from Malaysia totaled 35.68 million tons in the first seven months of the year, an increase of 21% year-on-year.

In addition to offering discounts to Chinese refineries, Iran conducts ship-to-ship transfers of its oil in the oceans and is forced to keep tens of millions of barrels of its oil stored on water, eventually sending the oil to China through brokers and changing the ownership of the cargoes.

Chinese customs data shows that this year, it has not directly purchased any oil from Iran.

The trade intelligence Kpler’s tanker tracking data shows that the volume of Iran's oil transit to Chinese markets reached 1.6 mb/d in July.

In the first seven months of this year, Iran exported 1.56 mb/d of oil, of which 1.49 mb/d has transited to China and the rest to Syria, Brunei, and unknown destinations.

Data from the energy consulting firm Vortexa also shows that the volume of Iranian oil actually received by China has significantly increased this year.

Iran's customs data shows that in the first four months of the current fiscal year (from March 20 to July 21), Iran's revenue from oil and fuel oil exports (whether in cash, through bartering oil for goods, or other means) was $15.7 billion. However, based on the volume of oil exported during this period and the oil prices, the revenue should have been at least $17.5 billion.

It also remains unclear if Iran receives payments in hard currency from China or as barter deals. The shaky status of Iran’s battered currency, rial, could be an indication that Tehran does not recover its oil revenues all in cash. The rial is hovering near all time lows of 600,000 to the US dollar.