Chinese Refineries Shift to Russian Oil as Iranian Supply Dwindles

Chinese refineries are increasingly turning to Russian and Iraqi oil as the immediate supply of Iranian crude has sharply decreased. According to Kepler data, the supply of Iranian oil available to Chinese buyers is nearly exhausted, and new supplies are expected to be difficult from the end of September. U.S. sanctions against Iran and the instability of navigation in the Strait of Hormuz are impacting the procurement routes for raw materials. The U.S. Treasury's Office of Foreign Assets Control has altered existing licenses related to Iranian oil, increasing the risk of sanctions. Independent Chinese refiners have been using discounted Iranian oil as a primary raw material, but with the reduction in immediately available quantities and the burden of sanctions, they are now seeking alternative sources such as Russian Urals, ESPO, and Iraqi oil. Kepler has analyzed that Iran's actual oil storage capacity is limited to about 13.5 million barrels. Recently, Sinopec has made large purchases of Russian oil and is considering resuming Iranian oil purchases, but alternative supplies and domestic demand are constraining further acquisitions. The instability in the Strait of Hormuz is affecting oil prices and transportation costs, reflecting concerns over supply disruptions. Whether the reduction in Iranian oil supply will result in short-term supply shortages or lead to an expansion of procurement from Russia and Iraq will become clearer based on the situation of securing deliveries by the end of September.

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