China Outsmarts US Sanctions on Iranian Oil

The United States is intensifying economic pressure on Iran by restricting its access to international banking, which has led to China adapting to this new reality. Treasury Secretary Scott Bessent's strategy aims to limit China's ability to import Iranian crude oil, but so far, the effects have been limited. According to high-frequency data from Lloyd's List, tanker traffic at ports associated with Chinese refineries that process Iranian crude has increased recently, despite a drop in declared crude imports.

These 'teapots' are refineries that don't use dollar-based international banking and were initially exempt from US sanctions. However, their tanker calls have recovered more quickly than other oil ports in mid-August. China's reaction to the changing landscape has been flexible, with lower imports, a shift towards sourcing oil from Brazil and Russia, reduced refinery runs, and inventory usage.

The limits of Bessent's strategy are evident as China has successfully adapted to the new constraints on traditional GCC trading partners, Iran being one. The US Treasury's efforts may have underestimated China's resilience in the face of economic pressure.