Reuters/Beijing

An increase would go against the spirit of November’s breakthrough agreement relaxing some of the stringent measures slapped on Iran two years ago over its nuclear programme.

The November deal between Tehran and the group known as P5+1 - made up of the US and five other global powers - paused efforts to reduce Iran’s crude sales but required buyers to hold to “current average amounts” of Iranian oil imports.

That agreement was seen as a reward for a softer diplomatic tone from Tehran that was forced, some US officials and lawmakers say, by US and EU sanctions that slashed Iran’s oil exports by more than half to about 1mn bpd and cost it as much as $80bn in lost revenue.

But industry sources say Chinese state-trader Zhuhai Zhenrong Corp, which was sanctioned by Washington in early 2012 for supplying gasoline to Iran, is in talks with the National Iranian Oil Company (NIOC) for a new contract for condensate.

However, it was not clear how much of the light crude would be imported through any new term deal. Zhenrong or others could also continue buying condensate through spot deals.

“If they do step up imports from Iran, they are risking more sanctions from the US,” said a trader with a Western trading house that sells to China. “The Chinese government may make some noises if overall imports from Iran rise too much, but not if there is a slight increase.”

Zhenrong, an affiliate of China’s defence authorities in the 1990s, acts largely as an import agent for China Petroleum and Chemical Corp, or Sinopec, whose refineries process Iranian crude.

Zhenrong also buys a small amount for a PetroChina-controlled refinery.

The new condensate contract would be through a subsidiary, Tianjin Zhenrong International Energy Corp, for delivery to independent petrochemical plant Dragon Aromatics in southeast China’s Fujian province, the sources said.

Dragon Aromatics since around August has been buying from Zhenrong on a spot basis about 66,000 bpd of condensate produced from Iran’s South Pars gas project.

A Zhenrong spokesperson declined to comment on any negotiations and whether they ran the risk of putting the company under pressure from Washington.

“More pressure? Do you think they really care?” said a former Zhenrong trader. Zhenrong, with no investments in the US that could be targeted, has long thought it could be folded into a larger state company as a crude oil desk and probably has few concerns about any future sanctions, he said.

Besides the new deal, Iran’s largest trade partner and oil customer China is set to roll over its existing import volumes of about 505,000 bpd.

Actual imports from Iran in the first 11 months of this year have been lower at 421,520 bpd, down 0.6% on year, according to Chinese customs figures, due to pressure from the Western sanctions. China’s total imports from Iran averaged about 530,500 bpd in the year prior to the sanctions.

Of the total for next year, Zhuhai Zhenrong is set to renew its annual supply deal at around 240,000 bpd, not including any new deal for condensate.

“It’s almost done, and the volume will be the same,” said a trading official with direct knowledge of the supply talks. Senior Zhenrong officials may visit Tehran in the coming weeks to put final touches on the 2014 agreement, the official said.

Zhenrong was set up around 1995 to take oil from Tehran in payment for arms Beijing supplied during the 1980-88 Iran-Iraq war. It has been a commercial state-run enterprise since 1998.

The balance of China’s contract volumes from Iran would be going to Sinopec, through its trading vehicle Unipec.

Unipec agreed with NIOC early last year to an 8-year oil contract to end-2019 to lift around 265,000 bpd, about a quarter of which is condensate, according to a second trading official.

Under US and European sanctions, Sinopec has been lifting below those contractual volumes to win waivers to the US measures every six months, with one official estimating the cut at 11%-13%. Sinopec has filled the gap mainly with Iraqi and Russian supplies.

Waivers for China, India and South Korea were extended in November.

China’s waiver, together with November’s diplomatic breakthrough, may have taken some pressure off the US-listed Sinopec, the world’s single largest Iranian oil processor, to make further cuts.

“It’s at Sinopec’s discretion to decide whether to perform the contractual volume,” said a second trading official. “But the contract is there, signed through end of 2019.”

A Sinopec spokesperson said he was not aware of the contract and was unable to comment.

Since November, Sinopec has loaded slightly above contractual rates following a meeting the previous month between Iran’s deputy oil minister Ali Mojedi and a Sinopec executive in charge of trading, said the second official.

But Sinopec may not risk raising imports significantly higher before more progress is made on easing sanctions on Iran.

“There are still potential risks without signs of sanctions being lifted in a meaningful way,” said a procurement official with a Sinopec refinery.