China has reaped significant savings this year, totaling nearly $10 billion, thanks to record oil purchases from countries facing Western sanctions, according to Reuters’ calculations based on data from traders and ship trackers.
These unintended benefits of sanctions imposed by the United States and others on Russia, Iran, and Venezuela have led to lower oil import costs for Chinese refiners, bolstering China’s economic position and challenging the effectiveness of unilateral penalties.
Reuters’ analysis of China’s savings on oil purchases from these three sanctioned countries reveals the difference between what Chinese importers would have paid by purchasing similar grades from non-sanctioned producers.
These lower-priced imports have boosted China’s throughput and margins, benefiting small independent operators known as “teapots” while facilitating lucrative exports by state-owned refiners of diesel and gasoline. These savings come at a crucial time as China faces economic headwinds.
China’s purchases also serve as a crucial revenue lifeline for Moscow, Tehran, and Caracas, whose economies have been stifled by Western sanctions and a decrease in investment.
China has been setting records with its oil imports from Iran, Russia, and Venezuela in 2023. Ship tracker data from Vortexa and Kpler reveals that China received 2.765 million barrels per day (bpd) of crude oil from these countries in the first nine months of the year.
This increased volume accounts for a quarter of China’s imports during this period, up from 21% in 2022 and double the 12% share in 2020.
These imports have displaced alternatives from the Middle East, West Africa, and South America.
While the savings are a fraction of China’s overall oil import bill, they are highly significant for independent refiners in China who actively seek out cost-effective options.
A Lifeline for China’s Independent Oil Refiners
China’s oil imports from Russia, which supplied 1.3 million bpd of seaborne crude in the first nine months of 2023, have contributed significantly to these savings.
China also imported approximately 800,000 bpd of ESPO crude from Russia via pipeline. These seaborne imports include ESPO from Russia’s Pacific port of Kozmino and Urals from the Baltic Sea.
The total Russian shipments increased by over 400,000 bpd year-on-year, largely due to the redirection of oil flows from Europe to India and China as a result of sanctions triggered by Moscow’s invasion of Ukraine.
China saved $4.34 billion by importing Russian oil, making a direct price comparison between ESPO and Tupi crude from Brazil and Urals versus Oman.
China has also seen substantial savings from its imports of Venezuelan and Iranian oil. The savings on Venezuelan oil, primarily heavy grade Merey, amounted to an average of $10 a barrel compared to comparable Colombian Castilla crude.
The savings on Iranian crude were roughly $15 a barrel compared to Oman oil. Over the first nine months of 2023, China saved about $4.2 billion by importing a record 1 million bpd of oil from Iran, 60% above pre-sanction levels recorded in 2017.
By comparison, Oman averaged a $2 premium above Brent during the same period. Venezuela’s oil imports, totaling around 430,000 bpd from January to September, yielded savings of $1.17 billion for China.
The US State Department noted that price caps on Russian oil enabled buyers to negotiate better deals, ultimately limiting Moscow’s revenue.
The sanctions on Iranian oil and petrochemicals have caused hyperinflation in Iran and a significant depreciation of its currency since 2021.
Despite the economic benefits, China has reiterated its stance against unilateral sanctions and emphasizes the importance of respecting and protecting normal trade.
China’s teapot refiners, which include small, independent operators, have benefited significantly from these lower-priced oil imports, operating at higher capacity and generating increased margins on processing imported crude.
However, their potential for further cost savings is limited due to crude import quotas and regulatory scrutiny. These constraints could put a limit on the volume of oil China imports from these countries.
Moreover, the threat of tighter enforcement of sanctions, particularly on Iran due to the recent crisis in Israel, may further curb Iran’s oil exports, which primarily flow to China.
Source: Reuters via Yahoo