Watch out Iran. Saudi Arabia is moving in on your biggest oil customer.
Saudi shipments of oil into China jumped by 36% in February to the highest level in at least three years, according to ClipperData, a firm that tracks global crude shipments. The shipments accounted for a 75% increase in Chinese imports of Saudi crude from January.
The timing of this shift is sure to raise eyebrows. China is the Number One customer of long time Saudi enemy Iran. And the oil sales are heating up even though the kingdom has called for global oil producers to “freeze” oil output at January levels.
Iran has blasted the Saudi freeze plan as a “joke.” In fact, Iran told CNN it’s doing the opposite, with plans to dramatically ramp up production now that economic sanctions have been lifted.
Analysts believe the Saudi shipments to China are more about politics than economics.
“It’s a political shot across the bow of Iran,” said Matthew Smith, ClipperData’s director of commodity research. “The timing of it seems extremely interesting. It looks like there’s something underway there.”
The Saudis have no interest in helping Iran’s triumphant return to the oil market. The new oil revenue will strengthen Iran’s position as a rising regional power. It will also give Iran an influx of resources it could use to fight ongoing regional proxy battles against the Saudis in Syria, Yemen and elsewhere.
“It’s a broader attempt by the Saudis to thwart the resurgent influence of Iran,” said Vincent Piazza, an energy analyst at Bloomberg Intelligence.
Saudi Aramco, Saudi Arabia’s state-owned oil company, warned in January at Davos that it won’t withdraw production just “to make space for others.”
While the Saudis continue to flood Iran’s biggest customers with cheap crude, ClipperData said it has yet to see evidence that Iran has been successful at ramping up production.
Asia remains a key market for both producers. China is Saudi Arabia’s third-biggest customer, behind the U.S. and Japan, according to ClipperData. Iran is the sixth largest supplier of crude to China behind Saudi Arabia, Russia, Angola, Iraq and Oman.
The new Saudi crude has been flowing to terminals and refineries controlled by Sinopec, China’s state-owned oil company.
It will be interesting to see how much oil the Saudis send to China in the coming months. Was February a blip or is this part of a more concerted effort by the kingdom to undercut Iran?
In any case, the battle over China between Saudi Arabia and Iran is a fresh reminder of how deeply divided OPEC remains — and how difficult a production freeze would be to implement.
“Saudis’ actions speak louder than their words,” Smith said. “They may be willing to entertain a production freeze if everyone plays ball, but in the meantime they are continuing to flood the market.”
–CNNMoney’s Ivana Kottasova contributed to this report