Tugboats dock the oil tanker "Daniel" carrying crude oil imported from Iran at the Port of Zhoushan in Zhoushan city, east China's Zhejiang province, 8 March 2018. Imaginechina | AP Images

China and India are both unlikely to completely cut off Iranian crude imports, energy analysts have said, despite the imminent threat of U.S. sanctions. President Donald Trump's administration announced Monday that buyers of Iranian oil must stop purchases by May 1 or face sanctions. The move, which took many market participants by surprise, ends six months of waivers which had allowed Iran's eight biggest buyers of crude to continue to import limited volumes. International benchmark Brent crude traded at $74.26 Tuesday afternoon, up around 0.3%, while U.S. West Texas Intermediate (WTI) stood at $65.93, almost 0.6% higher. "Iranian exports will not actually reach zero," analysts at Eurasia Group said in a research note published Monday. "China, which imports approximately 500,000 bpd (barrels per day), will make considerable cuts in the near term. For Beijing, securing the trade agreement with the U.S. is the top priority, and China will not link Iran oil imports to the trade talks."

China 'can't and won't back down'

China is Iran's largest crude oil customer, with total imports last year of approximately 29.3 million tons or about 585,400 bpd, according to customs data sourced by Reuters. That's roughly 6% of China's total oil imports. On Tuesday, China's Foreign Ministry reportedly said it had formally complained to the U.S. over its decision to end waivers on sanctions of Iranian oil imports. Beijing said it was resolutely opposed to the move, adding its energy cooperation with Tehran is lawful and reasonable. Alongside India and six others, China was one of the eight global buyers of Iranian crude that won exemptions from the U.S. last November.

Chinese President Xi Jinping and U.S. President Donald Trump attend a welcome ceremony at the Great Hall of the People in Beijing on Nov. 9, 2017. Fred Dufour | AFP | Getty Images

The dispute over importing Iranian crude adds another fault line to increasingly fraught ties between Washington and Beijing. The world's two largest economies have been locked in a protracted trade war, souring business and consumer sentiment and battering financial markets. Nonetheless, despite the threat of sanctions and a heightened risk of further complications in the long-running trade conflict, analysts at Eurasia Group said they expect China to continue buying Iranian crude, perhaps as high as several hundred thousand barrels per day, to save face. "We think that China can't and won't back down this time and we could easily see an increase of Chinese oil imports from Iran up towards maybe 1 million bpd," Bjarne Schieldrop, chief commodities analyst at SEB, said in a research note published Tuesday. "There will also be an increasing amount of oil exports out of Iran which will go 'under the sanctions radar'… It will drive Iran closer to China and enable China to settle yet more oil in renminbi," Schieldrop added.

India's ties with Iran are 'significant and historic'

India will likely take a similar position to China, Eurasia Group analysts added. New Delhi is the second-largest importer of Iranian oil, after Beijing. "New Delhi will cut imports substantially but probably maintain approximately 100,000 bpd of Iranian imports paid for using a rupee payment system. This is less an energy security decision than a political one." "In the past several months India has worked hard to significantly diversify its energy sources in preparation for this situation. But India's ties with Iran are significant and historic, and New Delhi will work hard to maintain some links," Eurasia Group analysts said.

Minister of Petroleum & Natural Gas and Skill Development & Entrepreneurship, Dharmendra Pradhan gestures as he brief the media about the achievements of Ministry of Petroleum & Natural Gas and Ministry of Skill Development & Entrepreneurship in past 4 years at Shastri Bhawan on June 6, 2018 in New Delhi, India. Vipin Kumar | Hindustan Times via Getty Images