China has made significant financial gains this year, saving nearly $10 billion due to its record oil imports from countries under Western sanctions.
The sanctions against Russia, Iran, and Venezuela, imposed by the United States and other nations, have inadvertently led to reduced oil import costs for Chinese refiners.
This outcome is an unintended consequence of sanctions. It’s especially noteworthy given China’s frequent criticism of such ‘unilateral’ penalties.
The lowered prices of imported oil have boosted China’s economy, helping refiners, particularly small independent operators known as ‘teapots.’
These savings have enhanced the throughput and profit margins for the world’s second-largest oil consumer and refiner, and they have enabled state-owned refiners to increase diesel and gasoline exports amid challenging economic conditions.
China’s substantial oil purchases from these three sanctioned countries have also provided a lifeline to the economies of Moscow, Tehran, and Caracas. These nations have been grappling with Western sanctions and reduced investment.
During the first nine months of 2023, China imported a record 2.765 million barrels per day (bpd) of crude from Iran, Russia, and Venezuela by sea, displacing alternatives from the Middle East, West Africa, and South America.
These three countries accounted for a quarter of China’s oil imports, up from about 21% in 2022 and double the 12% share in 2020.
While the savings represent only a fraction of China’s total oil import bill, they are especially important for independent refiners seeking cost-effective options.
These refiners, called ‘teapots,’ are opportunistic buyers who appreciate such bargains.
Despite the savings, China maintains its stance opposing unilateral sanctions and emphasizing the importance of respecting and protecting normal trade. The country’s General Administration of Customs did not provide a comment.
Russia supplied 1.3 million bpd of seaborne crude to China in the first nine months of 2023.
China also imported about 800,000 bpd of ESPO crude via a pipeline. The seaborne imports consist mainly of ESPO and Urals crude.
For Russian oil imports, China saved approximately $4.34 billion this year.
Regarding Venezuelan oil, China saved an average of $10 a barrel compared to comparable Colombian Castilla crude.
In the case of Iranian crude, the savings amounted to roughly $15 a barrel compared to Oman oil.
China has saved about $4.2 billion by importing a record 1 million bpd from Iran.
These savings have been particularly significant due to Tehran’s increased output and steep discounts. The inflows of Venezuelan oil were around 430,000 bpd, resulting in savings of $1.17 billion for China.
US sanctions on Iranian oil and petrochemicals have had a substantial impact, causing hyperinflation and a currency plunge in Iran.
Sanctions on Venezuela will continue, and the US views the Maduro government’s relationship with China as a sign of its isolation within the global community.
China’s state refiners have not bought Iranian and Venezuelan crude, allowing teapots to take advantage of discounted oil.
Teapots in Shandong province have operated at 65.7% of capacity during the first three quarters of 2023, generating increased margins compared to the previous year.
However, crude import quotas and regulatory constraints limit the potential for further cost savings.
Tightened sanctions on Iran could also impact its oil exports to China should the US increase its enforcement in response to the recent Israel crisis.