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China’s record-breaking savings of nearly $10 billion in 2023 from oil imports have been driven by purchases from Russia, Iran, and Venezuela, all countries facing Western sanctions. This revelation comes from a comprehensive analysis conducted by Reuters, utilizing data from traders and ship trackers.
China’s Record Savings
An unintended consequence of sanctions imposed by the United States and others on Russia, Iran, and Venezuela has been to lower the oil import costs for China. These sanctions, often criticized by China for their unilateral nature, have created opportunities for savings on oil purchases.
Oil imports Boosting Throughput
Lower-priced imports have significantly boosted the throughput and margins for China, the world’s second-largest oil consumer and refiner. This benefits not only major players but also small independent operators, commonly referred to as “teapots.” Furthermore, it facilitates lucrative exports of diesel and gasoline, particularly as China faces economic headwinds.
Read More: Oil Prices Dip Amid Middle East Turmoil
Economic Lifeline
China’s purchases are a lifeline for Moscow, Tehran, and Caracas, whose economies are otherwise stifled by Western sanctions and decreased investments.
In the first nine months of 2023, China imported a record 2.765 million barrels of crude from Iran, Russia, and Venezuela. These three countries accounted for a quarter of China’s imports during this period, up from 21% in 2022 and double the 12% share in 2020. This shift displaced alternatives from the Middle East, West Africa, and South America.
Independent Refiners Benefit
The savings, though a fraction of China’s oil import bill, are significant for independent refiners, known as “teapots.” These entities actively seek bargains, appreciating the opportunities provided by lower-priced imports.
According to a U.S. State Department spokesperson, price caps on Russian oil have allowed buyers to “drive a harder bargain,” limiting Moscow’s revenue. The spokesperson also mentioned the impact of sanctions on Iran and Venezuela, highlighting their economic consequences.
Teapot Margins
Teapots have thrived on discounted oil from Iran and Venezuela, as state refiners Sinopec and PetroChina refrained from buying these nations’ crude. In Shandong province, teapots operated at 65.7% of capacity during the first three quarters of 2023, generating substantial margins on imported crude.
However, the potential for more cost savings is restricted by crude import quotas and regulatory scrutiny. Shandong refiners, in particular, could face limitations on how much Iran exports if subjected to further crackdowns.
Analysts also suggest that tighter U.S. sanctions on Iran, following the recent crisis in Israel, could further curb Iran’s oil exports, most of which flow to China.
In conclusion, China’s substantial savings from oil imports highlight the unintended benefits of Western sanctions on Russia, Iran, and Venezuela, with significant implications for China’s economy and global oil markets.
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