China has realized significant savings of almost $10 billion this year due to its record purchases of oil from countries under Western sanctions. This has been an unintended consequence of sanctions imposed on Russia, Iran, and Venezuela by the United States and other Western countries. By purchasing oil from these sanctioned countries at lower prices, Chinese refiners have enjoyed cost savings that have bolstered their margins and throughput. This has benefited not only large state-owned refiners but also smaller independent operators, often referred to as “teapots.” These lower-priced imports have also facilitated the export of diesel and gasoline by Chinese state-owned refiners, particularly valuable as China faces economic headwinds.
In the first nine months of 2023, China imported a record 2.765 million barrels per day (bpd) of crude oil from Iran, Russia, and Venezuela. This accounts for a quarter of China’s total imports during this period, up from about 21% in 2022 and double the 12% share in 2020. This has displaced alternatives from the Middle East, West Africa, and South America.
While these savings represent only a fraction of China’s total oil import bill, they are of significant importance to the country’s independent refiners, which actively seek cost-effective alternatives. These savings have been an unintended consequence of the sanctions, offering benefits to China’s oil market, while also providing revenue to Moscow, Tehran, and Caracas. These countries have been affected by Western sanctions and a reduction in investment, making China’s imports a lifeline for their economies.
The analysis shows that China has saved approximately $4.34 billion by importing Russian oil, $4.2 billion from Iranian imports, and $1.17 billion from Venezuelan oil imports during this period.
China’s Foreign Ministry has emphasized its opposition to unilateral sanctions and noted that China’s normal trade deserves respect and protection.
The reduced import costs have also allowed China to maintain a steady flow of affordable crude oil, ensuring the profitability of its refineries, particularly the smaller ones. While the situation has provided advantages for China and the sanctioned countries, it has also underscored the complex and far-reaching impacts of international sanctions.
It’s worth noting that these savings result from sanctions imposed on Russia, Iran, and Venezuela, which are often criticized by China as “unilateral” penalties. China has opposed such sanctions, emphasizing that they can have unintended consequences that benefit the country.
China’s ability to maintain steady and cost-effective oil supplies, even while opposing sanctions, highlights the nation’s strategic importance in the global energy landscape. It also underscores the complexities and challenges involved in using sanctions as a tool of foreign policy and economic pressure.
As the analysis demonstrates, sanctions can have far-reaching and sometimes unexpected consequences, impacting not only the sanctioned countries but also those that oppose or circumvent the sanctions, leading to unintended economic and geopolitical shifts in the global energy market. It’s a complex and evolving landscape where economic and geopolitical interests intersect, and strategies constantly adapt to changing circumstances.
