US and European sanctions have pushed more Russian oil east, where China has taken it, reducing demand for oil from Iran and Venezuela, which are also under Western sanctions.
According to shippers, as of mid-May, about 20 ships with oil from Iran were anchored off Singapore.
Some tankers have been anchored since February, but the number of tankers storing Iranian oil has risen rapidly since April, trading and shipping sources say, as more Russian oil heads east.
Data and analytics company Kpler said it estimates that the amount of Iranian oil in floating storage facilities near Singapore rose to 37 million barrels in mid-May from 22 million barrels in early April.
The United States banned Russian oil imports shortly after Moscow’s invasion, while the European Union is considering a phased embargo, sending more Russian oil cargo to Asia.
“Russia could redirect almost half of its exports to Southeast Asia, especially China… and this is a huge potential threat to Iranian oil exports,” said Hamid Hosseini, board member of the Iran Oil, Gas and Petrochemicals Exporters Union.
Iran, whose oil industry has struggled for years with US sanctions imposed over Tehran’s nuclear work, has long relied on Chinese purchases to keep the economy afloat.
“Now China is clearly buying more (Russian) Urals cargoes. Exports of Urals oil to China have more than tripled despite weakening Chinese imports,” said Homayoun Falakshahi, senior analyst at Kpler.
China, whose total oil imports have recently declined due to restrictions related to COVID-19, is also the largest buyer of Russian ESPO Blend oil.
Iran and Russia have been in close contact in recent weeks to discuss how to trade oil under sanctions, three sources told Reuters. One source said the Russian side wanted to know how Iran handled transport, trade and banking, while the two sides also discussed setting up joint companies, banks and funds.
Another source said additional talks are scheduled when Russian Deputy Prime Minister Alexander Novak visits Iran next week.
But the talks have not dampened competition for buyers of Russian Urals and Iranian oil, which is typically heavier and higher in sulfur, which tends to make them more costly to refine than Russian oil.
“No one is looking at Iranian oil anymore because Russian grades are much better quality and at lower prices. Sellers of Iranian oil are under a lot of pressure,” a Chinese refiner trader said.
He said Urals for China is selling at a $9 a barrel discount compared to Brent for June delivery, so Iranian barrels had to be offered at $12 to $15 discounts to compete.
Russian oil and oil products also enter other markets, especially India and the United Arab Emirates (UAE).
Meanwhile, India has increased its purchases of Russian oil. By early June, India is importing more than 30 million barrels in the past three months, more than doubling its imports for all of 2021, according to Kpler.
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