Independent Chinese refineries, which rely heavily on Iranian oil imports, anticipate a reduction in imported volumes following the intensification of international sanctions. Despite these adjustments, industry sources believe that significant disruptions in supply are unlikely in the short term.
Analysts at S&P Global Commodity Insights said the situation remains stable, although tensions in the Middle East could put pressure on oil volumes and prices. China’s major refineries are closely monitoring developments in the conflict, but have not yet taken immediate steps to secure alternative supplies.
Impact of Strengthened Sanctions
Tighter U.S. sanctions on Iranian oil could change the import landscape for Chinese refineries. A Beijing-based trading official stressed that any military response from Israel could also influence Iranian exports, whether through attacks on oil infrastructure or increased pressure to tighten sanctions.
A senior trader based in Singapore added that the United States is likely to control the situation to avoid a surge in oil prices, which could limit market disruption. This American intervention is seen as an essential stabilizing factor for the global oil market.
Strategies of Independent Refineries
Despite the possible reduction in Iranian imports, independent refineries in China have not yet activated contingency plans to diversify their sources of supply. A Shandong source indicated that strict enforcement of sanctions could nevertheless alter this outlook, especially if the United States decides to further sanction financial institutions facilitating Iranian oil transactions.
Since the reimposition of sanctions on Iran in 2018, China’s independent refineries have been the main buyers of Iranian oil, also relying on Russian and Venezuelan crudes, which are generally less expensive than non-sanctioned alternatives. Transactions in Chinese yuan through local banks provide additional flexibility in these exchanges.
Oil Market Outlook
Data from S&P Global Commodities at Sea reveals a significant decline in Iranian oil exports, reaching 237,000 barrels per day in the week ending October 6, the lowest level in two years. This contraction is attributed to reduced supply on the market, exacerbated by ongoing geopolitical tensions.
Sources indicate that bids for Iranian light crude narrowed their spread against ICE Brent futures, from $4-4.5 per barrel in September to $3.5 per barrel in October. Likewise, Iranian heavy crudes saw their reductions tighten, going from 7.5-8 dollars to 6.5-7.5 dollars per barrel.
Supply Alternatives and Flexibility
Faced with declining Iranian supplies, Chinese refineries could increase their purchases of Russian crudes, notably ESPO (Eastern Siberia-Pacific Ocean). Cargoes scheduled for December have not yet been finalized, although a slight drop in prices is anticipated compared to November.
Furthermore, refineries have not completely suspended the purchase of imported fiu, which remains a viable alternative as a raw material. However, planned changes to tax regulations on fuel oil and bitumen blends could increase the tax burdens of independent refineries, potentially impacting their profit margins.
China’s Foreign Ministry has called on major influential nations in the region to play a constructive role in preventing further escalation. Mao Ning, spokesperson for the ministry, expressed China’s concern over the turbulent situation in the Middle East and called on all parties to act responsibly to maintain regional peace and stability.
