By Chen Aizhu and Florence Tan
BEIJING / SINGAPORE (Reuters) – China, which is trying to circumvent American sanctions, will use oil tankers from Iran for its purchases of crude oil in that country, Tehran blaming a lifeline while European companies such as Total are running away in France due to fear of retaliation from Washington.
The United States is trying to stop Iranian oil exports in an attempt to force Tehran to negotiate a new nuclear agreement and curb its influence in the Middle East.
China, which reduced US crude oil imports amid a trade war with Washington, said it opposed unilateral sanctions and defended its commercial ties with Iran.
On Monday, sources told Reuters that Chinese buyers of Iranian oil began to shift their cargoes to ships owned by National Iranian Tanker Co. (NITC) for almost all their imports.
The shift shows that China, Iran's largest oil customer, wants to continue to buy Iranian crude oil despite the sanctions, which was reintroduced after the United States withdrew in May from a 2015 agreement to halt Iran's nuclear program.
"The shift started very recently and it was almost a simultaneous call from both sides," said a source, a senior, Beijing-based oil director, who asked not to be identified because he is not allowed to speak publicly about commercial deals.
Tehran used a similar system between 2012 and 2016 to circumvent sanctions led by Western countries, limiting exports by making it virtually impossible to take out transport insurance for doing business with Iran.
Iran, OPEC's third-largest oil producer, relies on the sale of crude oil to China, Japan, South Korea, India and the EU to generate the lion's share of budget revenues and keep its economy running.
The United States has asked purchasers of Iranian oil to reduce imports from November. Japan, South Korea, India and most European countries have already shortened their activities.
The French oil company Total, formerly one of the largest European buyers of Iranian oil, said that it has no choice but to stop imports and to divest Iranian projects to secure its operations in the United States.
On Monday, Iranian oil minister Bijan Zanganeh said Total had officially abandoned the Iranian South Pars gas project.
Iranian officials had previously suggested that China's state-owned CNPC could take over Total's interest and Zanganeh said the process of replacing the French company was under way.
French President Emmanuel Macron has repeatedly called for the Iranian nuclear agreement to be maintained and the interests of EU companies in Iran to be defended.
But most European companies have admitted that they would be forced to run away from Tehran for fear of sanctions and losing access to US dollar operations.
Oil production in Iran: https://tmsnrt.rs/2OQfHI5
The first round of US sanctions, including the cutting off of Iran and all companies that trade with it from the American financial system, went into effect on 7 August.
A ban on Iranian oil purchases will start in November. Insurers, who are mainly based in the US or Europe, have started to liquidate their Iranian company in order to comply with the sanctions.
To secure their supplies, oil trader Zhuhai Zhenrong Corp and Sinopec Group, the largest refinery in Asia, have activated a clause in long-term supply agreements with National Iranian Oil Corp. (NIOC) to use NITC-powered tankers, four sources with direct knowledge of the case.
The price for oil under the long-term deals has been changed to a delivered ex-ship basis of the previous free-on-board conditions, meaning that Iran will cover all costs and risks of delivering the crude oil and the insurance will deal with it, she said.
In July, all 17 tankers that were chartered to transport oil from Iran to China were operated by NITC according to Thomson Reuters Eikon shipping data. In June eight of the 19 chartered ships were in Chinese hands.
Last month, these tankers loaded about 23.8 million barrels of crude oil and condensate, destined for China, or about 767,000 barrels per day (bpd). In June the loadings were 19.8 million barrels, or 660,000 barges.
In 2017, China imported an average of 623,000 bpd, according to customs data.
Sinopec declined to comment. A spokesman for Nam Kwong Group, the parent of Zhenrong, declined to comment.
NIOC did not respond to an e-mail requesting comments. A spokesperson for the NITC said it would forward a request from Reuters for comments on the Ministry of Culture and Islamic Guidance.
It was not immediately clear how Iran would ensure Chinese oil purchases, worth about $ 1.5 billion per month. Insurance usually includes coverage for oil charges, legal liability and pollution.
(Additional report by Parisa Hafezi in Ankara; Writing by Dmitry Zhdannikov; Editing by Dale Hudson)