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Sanctions loophole allows China to buy Iran fuel oil

September 06-13
A loophole has allowed China to import nearly $500 million of additional oil products from Iran this year while avoiding US sanctions, The Wall Street Journal reported last Thursday.
This results because the sanctions law measures only crude oil, not fuel oil, a byproduct of refining crude. While fuel oil is significantly less valuable than other refined fuels, some Chinese refineries can process it into more valuable fuels.
The result is that China is actually importing more oil from Iran this year than last year. It has cut imports of crude by 3.3 million barrels a day, but boosted imports of fuel oil by 5.4 million. This makes something of a joke of sanctions. However, the fuel oil isn’t worth as much as crude, so Iran is not getting more revenue.
To qualify for an exemption from sanctions, foreign countries are required to make “significant” reductions in their imports of crude oil every six months. If the law said crude oil and oil products, China would not qualify for an exemption. China won its third six-month exemption from sanctions in June.
A look at Chinese customs data shows that after importing less than $1 million worth of fuel oil in all of 2012, China imported 5.4 million barrels a day of Iranian fuel oil valued at $495 million in the first seven months this year, the Journal reported.
Meanwhile, China imported 3.3 million fewer barrels a day of Iranian crude in the first seven months of 2013 compared with the same period a year earlier, according to customs data. This year’s crude imports were valued at $9.5 billion, down $850 million from a year earlier as a result of both lower volumes and weaker oil prices.
The volume of total Chinese imports of Iranian oil is up, though the value is down because of the lower price of fuel oil.
“This is widely recognized as a loophole that you can drive an Iranian oil tanker through,” said Mark Dubowitz, executive director at the Foundation for Defense of Democracies, a Washington think tank that has pushed for more sanctions against Iran.
“We’ve seen reports of some countries trading with Iran taking advantage of the current, narrow definition of crude oil to purchase fuel oil,” said Rep. Ed Royce, Republican of California, chairman of the House Foreign Affairs Committee. “So it is critical that Congress broaden the definitions contained in law, to starve Tehran of much-needed hard currency and deny it the means to acquire a nuclear-weapons capability.”
The sanctions bill that passed the House last month adds fuel oil to the calculation.

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