China Saves Billions on Oil Imports Despite Western Sanctions
China Benefits from Record Oil Imports Despite Sanctions
China has managed to save nearly $10 billion this year through its record purchases of oil from countries facing Western sanctions. This unexpected consequence of sanctions imposed by the United States, Russia, Iran, and Venezuela has significantly reduced China’s oil import costs. Despite being critical of such “unilateral” penalties, China has taken advantage of lower-priced imports to bolster its refining industry, particularly benefiting small independent operators known as “teapots.” These savings have also acted as a lifeline for the economies of Moscow, Tehran, and Caracas, which have been severely impacted by Western sanctions and declining investments.
China’s Record-Breaking Imports
In the first nine months of 2023, China imported a record-breaking 2.765 million barrels per day (bpd) of crude oil from Iran, Russia, and Venezuela. This accounted for a quarter of China’s total oil imports during this period. These purchases have displaced alternatives from the Middle East, West Africa, and South America. While the savings from these imports are only a fraction of China’s overall oil import bill, they have significantly benefited independent refiners who actively seek out bargains.
Savings from Russian, Venezuelan, and Iranian Oil
China has saved approximately $4.34 billion by importing Russian oil, $1.17 billion from buying Venezuelan oil, and roughly $4.2 billion from its record-breaking purchases of Iranian oil. These savings were calculated by comparing the prices of the imported oil with similar grades from non-sanctioned producers. The lower costs have not only boosted China’s refining margins but have also supported its oil exports. Chinese traders have taken advantage of these savings by actively purchasing discounted oil from Russia, Iran, and Venezuela.
Implications for China’s Teapot Refiners
State refiners Sinopec and PetroChina have refrained from buying Iranian and Venezuelan crude, allowing teapot refiners to benefit from the discounted oil. These teapot refiners, located in China’s refining hub of Shandong province, have seen their margins increase and have operated at 65.7% of capacity during the first three quarters of 2023. However, their ability to save on costs is limited by crude import quotas and regulatory scrutiny. Any further crackdowns on teapot refiners could impact the amount of Iranian oil China can import.
The Future of China’s Oil Imports
The savings China has achieved through its oil imports from sanctioned countries provide a significant advantage for its refining industry. However, potential future enforcement of sanctions and geopolitical conflicts could impact China’s oil imports. Analysts suggest that tighter enforcement of sanctions on Iran, particularly due to the recent crisis in Israel, could reduce Iran’s oil exports, which primarily flow to China. It remains to be seen how geopolitical developments will shape China’s oil import landscape in the coming months.
China has managed to save billions of dollars on oil imports despite Western sanctions. Its record purchases of oil from countries facing sanctions have significantly reduced import costs, benefiting both China’s refining industry and economies of sanctioned nations. These savings have also supported China’s oil exports. However, the future impact of geopolitical conflicts and potential sanctions enforcement remains uncertain.
