ROB SCHMITZ, HOST:
President Trump indicated on social media that he has canceled new attacks on Iran because there's an agreement on, quote, "the perimeters of a deal." Iranian officials have pushed back on some of Trump's claims regarding a potential deal. This is the latest development in a war that's now in its sixth month of on-and-off-again fighting. One of the major ripple effects of the conflict has been a spike in global energy prices due to blockades along the Strait of Hormuz, a key shipping route for oil. Despite that, China has been finding ways to access hundreds of thousands of barrels of oil from the region per day. Wall Street Journal reporter Austin Ramsey has been following this story closely from Hong Kong. I asked him, how is China pulling this off?
AUSTIN RAMSEY: China has been a longtime importer of oil from Iran, and obviously, the blockade has made that difficult. Essentially what they've done is they've taken oil that was shipped out before the blockade and then during the pause - the roughly one-month pause between mid-June and mid-July - Iran shipped a bunch of oil out, more than 60 tankers, analysts say, all of it bound for China - oil worth, estimates say, 5- to $6 billion.
SCHMITZ: Wow. Can you give us a scale of how much oil China is actually getting from Iran? You know, how that's changed over the last few months?
RAMSEY: China has always been the - for the past decade or so, China's been the largest importer of Iranian oil, taking about 90% of Iran's oil supply.
SCHMITZ: Wow, 90%?
RAMSEY: That's right. It's largely because of U.S. sanctions. China is the only importer that's willing to risk the potential impact of sanctions. They've set up a lot of mechanisms to prevent possible secondary sanctions from harming their economy. And so this is a long-established pattern. The imports of oil on average were about 1.7 million barrels per day last year up through until the start of the war. That dropped down quite a bit to about half a million in July. A significant drop, but they are still taking a significant amount of oil from Iran.
SCHMITZ: How does China circumvent these sanctions?
RAMSEY: There are several ways. The key is that they try and avoid the dollar system as much as possible. So there are payments that are going in renminbi. There are payments that are essentially barter. China will build infrastructure in Iran in exchange for oil. The oil is shipped out on what's called the ghost fleet. These are ships - many of them are sanctioned themselves. Most of them travel to an area east of Malaysia where they conduct ship-to-ship transfers, so the oil is basically put on another ship and then taken to China. All that's in an effort to sort of obfuscate the source of the oil and make it more difficult to impose secondary sanctions. And officially, China does not actually import oil from Iran. In their numbers, it shows up as oil from Malaysia or Indonesia. All this is an effort to conceal where it's coming from.
SCHMITZ: Interesting. So the reason that they ship it to Malaysia and then move it to another ship is then, at that point, it looks like it's coming from Malaysia not Iran.
RAMSEY: Yeah, it's - I mean, you can still tell. People watch from satellites, and they can see what's happening. But this is all an effort to just try and make it harder to see what's happening and reduce the possibility that Chinese companies might be impacted further by U.S. sanctions.
SCHMITZ: So what I found interesting in your report - that China isn't just importing Iranian oil, it's also importing Saudi oil. Of course, these are two countries that are on opposite sides of this war. How is China navigating that?
RAMSEY: Well, China has also been a big buyer of Saudi oil for some time, and the volume of oil that they've historically bought from Saudi Arabia is roughly the same or slightly larger than what they buy from Iran. They appear to have gotten a special dispensation, it seems. Saudi Arabia has been sending some oil out through the Red Sea. The Houthi, the rebels in Yemen, have begun attacking some ships and making it dangerous now to exit through the south entrance to the Red Sea, the Bab el-Mandeb Strait. But because China has a fairly good relationship with the Houthi, it seems that their ships carrying oil to China are not being attacked. So we've seen a couple over the past week that have made it through there and not been attacked. So it seems like that is another route that China is now able to get oil from the region that might be harder for other countries.
SCHMITZ: Yeah. And on that point, you wrote that the Chinese vessels were broadcasting a message to the Houthis making it clear that their ships had a Chinese crew and a Chinese owner, and then the Houthis let them pass. Obviously, the Houthis are backed by Iran. This insinuation here is that Iran is telling the Houthis not to attack Chinese ships. Is that what's happening here?
RAMSEY: It seems to be what's happening. We don't know the details of the deal, but in the past, when the Houthi have threatened ships in the Red Sea - during the Gaza War, some of that also occurred, and Chinese ships were also able to get a safe passage. And it seems like there is some sort of agreement happening to allow the safe passage of Chinese ships, and it seems a Chinese cargo ship was also just recently able to pass through as well. So it seems like they are getting safe passage.
SCHMITZ: So there obviously seems to be some sort of official broadcasting or messaging to these groups saying, hey, we're Chinese, let us through.
RAMSEY: That's right. And in fact, in the past, there was a - even a email address where you could email the Houthi forces and request permission to cross. So there's several mechanisms to sort of make it clear or try and make it clear that you're Chinese and you'd like to go through and not be attacked.
SCHMITZ: Wow. So despite the continued flow of oil to China, your reporting shows it's still significantly less than before the Iran war. How have people been feeling the effects of that where you are?
RAMSEY: Gas is more expensive here, but China has done a few things to mitigate the impact. For one, they've stopped importing as much oil. They've reduced their oil imports by about 40%. Part of that is they've reduced exports of refined petroleum products. China is also taking a lot of long-term steps to try and reduce its dependency on imported oil. There are electric cars everywhere, and their numbers are growing. There's an increasing reliance on trains instead of air travel and emphasis on renewable energy, hydro and solar and things like that. So both in the short term and the long term, the Chinese government is really trying to think of ways to reduce its dependency on imported oil.
SCHMITZ: Has the price of gas or any, you know, oil-based fuel - has that gone up in China as much as it's gone up in the rest of the world, in the West?
RAMSEY: No, not nearly as much. It's gone up a bit. I'm in Hong Kong where it's gone up quite a bit, but Hong Kong has much fewer private drivers, so it's not as significant. It's gone up some in the mainland, but you haven't seen the sort of dramatic spikes that you've seen in other places.
SCHMITZ: That is Austin Ramsey. He's a reporter for The Wall Street Journal, based in Hong Kong. Austin, thanks.
RAMSEY: Thank you, Rob. Transcript provided by NPR, Copyright NPR.
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