Latest official figures from China show its oil imports from Russia soared, displacing Saudi Arabia as top supplier, while continuing to buy cheap Iranian oil.

Russia shipped 8.42 million tons of oil to China, or about 61.5 million barrels in May, 55 percent higher than a year earlier after many countries stopped buying its crude after the invasion of Ukraine. This amounts to roughly 2 million barrels a day, while Saudi Arabia shipped 7.82 million tons. The figures came from the Chinese General Administration of Customs.

Previously it was reported that Iranian shipments to China had dropped by as much as 50 percent in May due to Russian competition, but the official Chinese figures, which show only a part of imports from Iran, do not indicate a drop, at least in the officially imported crude. Iran shipped 260,000 tons or less than 1.9 million barrels, which is just over 61,000 barrels per day.

But Chinese Customs figures do not reflect the full picture of Iranian oil imports, because of United States third-party sanctions, which could penalize companies buying Iranian crude. Most of Iran’s shipments go through Malaysia and are imported as such. Iranian tankers have been transferring their cargo to other tankers in Asian waters that carry it to China as oil coming from other countries.

Russia, Iran and Venezuela offer steep discounts to China, which despite less demand because of the COVID pandemic and a slowing economy, prefers to replace other supplies with oil from those sanctioned countries. As a result, more supplies from the Middle East and Africa will be freed up for countries that do not buy Russian oil. As of May, the extra Russian oil China bought amounted to around million barrels a day compared with 2021.

But any reduction of Iranian exports to China will have a serious impact on the finances of the government in Tehran that has embarked on eliminating subsidies, in a tricky and risky political balancing act.

In early May, it eliminated a food import subsidy that cost between $9-15 billion a year depending on whose figures one considers. Iranian officials are notorious for announcing widely different and sometimes contradictory economic data.

Next in line seems to be a reduction in huge fuel price subsidies. The elimination of these subsidies is impoverishing a low-paid population, fueling almost non-stop protests. The government promised cash assistance to low-income people in lieu of eliminating subsidies, but this would need oil income. Otherwise, the government must keep printing money with the risk of inflation becoming triple digit.

The government has a clear choice of reaching an agreement with the United States to restore the 2015 nuclear deal known as the JCPOA, which would lift crippling sanctions on Iran’s oil exports and international banking, but apparently it has been counting on illicit oil sales to China as a way of muddling through. In the meantime, it has accelerated it nuclear program, either to build more leverage in the talks or to actually achieve the status of a nuclear threshold country.

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