June 22, 2012 | Quoted by Wayne Ma and Brian Spegele, The Wall Street Journal

Beijing’s Oil Imports From Iran Rebound

China's oil imports from Iran continued to sharply rebound in May to nearly match 2011 levels following a steep drop-off earlier this year, figures showed Thursday, a day after Secretary of State Hillary Clinton said Beijing appeared to be taking steps to reduce purchases from Iran.

The latest data raise pressure on the Obama administration as it tries to decide whether it will grant China an exemption to looming U.S. sanctions that target financial institutions doing business with Iran's energy sector. Granting China an exemption just as its trade with Iran appears to be normalizing could be politically risky for President Barack Obama, analysts say. The deadline to comply with U.S. sanctions is June 28.

China's General Administration of Customs said crude imports from Iran slipped 2.3% in May compared with a year earlier, to 2.2 million metric tons, or 524,000 barrels a day, allowing Iran to reclaim its spot as China's third-largest supplier after it slipped earlier this year. May data also showed imports rose 38.99% compared with April.

Crude imports from Iran were still down nearly 25% in the January-to-May period following commercial disputes between China International United Petroleum & Chemical Co., known as Unipec, and National Iranian Oil Co. The deadlock was resolved in mid-February, and purchases began recovering in April.

Even if China's crude shipments from Iran equal last year's levels for the rest of this year, Beijing's full-year crude imports from Iran would still be 12% lower than in 2011, according to calculations by The Wall Street Journal.

Western diplomats and energy analysts say it is unreasonable to expect Beijing to significantly cut Iran imports in the short term because of its high dependence on them.

It remains unclear whether Washington will accept the import drop-off from early this year as reason for an exemption.

Mark Dubowitz, executive director at the Foundation for Defense of Democracies, a Washington think tank that has pushed for more sanctions against Iran, said the Obama administration is likely concerned about granting China a waiver based on earlier cuts at a time when Iranian crude imports return to previous levels.

“The administration may, however, decide to move ahead with the waiver to avoid a political fight with Beijing,” he said.

Chinese Foreign Ministry spokesman Hong Lei reiterated China's opposition to U.S. sanctions at a daily news briefing on Thursday. “China's import of oil from Iran is completely fair and reasonable and does not hurt third parties or the international community,” Mr. Hong said.

Mrs. Clinton's remarks, broadcast Wednesday, suggested the U.S. was softening its tone against Beijing ahead of the deadline. “We've seen China slowly but surely take actions,” Mrs. Clinton said in an appearance with former Secretary of State James A. Baker III.

Earlier this month, the White House granted exemptions to seven more countries from the new U.S. sanctions before next week's deadline. India and South Korea were among those exempted from the U.S. sanctions after the U.S. believed they had significantly reduced imports.

Thursday's data, meanwhile, showed China's imports from Sudan were halted for a second consecutive month.

Sudan's oil exports originate in oil fields in South Sudan, which stopped crude production in January due to a dispute over transit fees with its northern neighbor. Sudan was China's seventh largest supplier in 2011, exporting about 260,000 barrels a day there.

Surges in imports from Venezuela, Iraq and Oman helped offset reduced supplies from South Sudan and Iran. Potentially longterm South Sudanese supply concerns make Beijing even less likely to slash Iran imports, according to JBC Energy, a Vienna-based consultancy.

Energy analysts say China appears to be growing its strategic petroleum reserves, as a result of supply concerns tied to South Sudan and Iran. China recorded a surprising crude-oil surplus of more than 1 million barrels a day in May, government data showed, which energy analysts have said indicates commercial and strategic stockpiling.

Government data showed China's crude surplus—which is its net crude imports minus refinery throughput—jumped to 440,000 barrels a day in the January-to-May period, from averaging 145,000 barrels a day in 2011. May's unusually large surplus of 4.4 million metric tons is equal to about 15 fully loaded supertankers.

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