Key facts
- China's imports of Iranian crude oil have significantly decreased in May, reaching a decade low.
- Waning domestic demand, refinery cutbacks, and U.S. sanctions are cited as reasons for the slowdown.
- China's independent 'teapot' refiners, closely linked to the state, are the primary buyers.
- The reduction in imports has helped offset global supply disruptions, particularly those related to the Strait of Hormuz.
- China holds substantial oil reserves, estimated at over 1.2 billion barrels, which are being drawn down.
Iran's crucial oil exports to China, a trade that has sustained Tehran under years of U.S. sanctions, are facing significant challenges due to declining demand and increased U.S. pressure. China's independent refiners, known as 'teapots,' have scaled back their purchases and reduced operating rates amid mounting economic losses. This slowdown, a surprising development in the global oil market, has prompted sellers to lower prices in an effort to revive interest.
Several factors are contributing to China's reduced intake of Iranian crude. Weaker domestic demand, coupled with record-high oil stockpiles, has lessened the need for new imports. The rapid rise of electric vehicles in China is also diminishing oil demand, particularly in the transportation sector. According to data from Kpler and Vortexa, China's seaborne crude imports fell sharply in May to their lowest level in nearly a decade, a trend that could persist through the summer. This reduction has helped to partially offset global supply disruptions, including those related to the Strait of Hormuz.
China's substantial oil reserves, estimated to exceed 1.2 billion barrels, are being utilized to compensate for lower imports, with refiners reportedly drawing down inventories. While major state-owned refineries have largely withdrawn from purchasing Iranian crude due to sanctions concerns, the 'teapot' refineries have stepped in. These smaller, independent refiners, though privately owned, maintain close ties to the Chinese state through various joint ventures and partnerships. This arrangement provides Beijing with a degree of plausible deniability regarding its continued trade with Iran.
Experts suggest that the oil revenue Iran receives from China, which absorbs approximately 90% of its exports, is effectively funding its military operations and regional proxies. A 2021 cooperation agreement between China and Iran secures discounted oil supplies for Beijing in exchange for investments in Iran's energy, banking, and infrastructure sectors. However, much of this trade occurs through opaque networks involving front companies and rerouted shipments, making it difficult to trace.