China’s discounted crude purchases are coming under strain as the United States tightens its stance on Iran and Venezuela, with analysts warning that more refineries may have to turn to higher-priced barrels from Canada, Brazil and the Middle East.
The world’s second-largest economy is also accelerating its shift to electric vehicles and ramping up domestic fossil fuel production to help narrow its oil supply gap, while maintaining strategic reserves to mitigate any potential disruption.
After securing influence over Venezuela’s oil sector, US President Donald Trump has begun ramping up pressure on Iran, warning last month that countries doing business with Tehran would face a 25 per cent tariff on US trade.
Washington issued general licences last week allowing American firms to trade Venezuelan crude, but Chinese, Russian and Iranian entities remain barred from doing so under US sanctions.
China’s official customs data showed limited direct exposure to the two markets: the country has recorded zero crude imports from Iran since 2023, while Venezuelan oil made up just 0.1 per cent of its total imports last year.
But industry data suggests there are significant off-the-books flows: according to trade intelligence firm Kpler, Iran shipped 1.38 million barrels of crude per day to Chinese buyers in 2025, which the firm calculated would account for around 13 per cent of China’s total seaborne volumes, down from 14.5 per cent the previous year. Venezuelan oil accounted for less than 4 per cent in both years.
“China’s independent refineries have benefited from cheap oil from Venezuela, Iran and Russia,” said June Goh, senior oil market analyst at Sparta Commodities. “Without Venezuelan barrels, they will need to tap more Iranian and Russian feedstocks both for crude and straight-run fuel oil as the next cheapest tranche of supply.”
“In a downside scenario, these independent refiners would need to turn to more expensive crude, such as Canadian, Brazilian or Middle Eastern crudes,” she added. “These barrels may not generate positive margins for them, leading to potential reduction in run rates.”
Elsewhere, customs data showed Russia had overtaken Saudi Arabia as China’s largest oil supplier since 2023, with Russia and five Gulf states – Saudi Arabia, Qatar, Oman, Iraq and the United Arab Emirates – accounting for about 60 per cent of the country’s recorded crude imports.
Aditya Saraswat, director of Middle East and North Africa research at Rystad Energy, said the US’ threatened Iran tariffs would hit China’s independent refiners hardest. “In response, Beijing could increase imports from alternative suppliers such as Russia, whose oil has also been available at discounted prices, to help offset any supply shortfall,” he added.
Chim Lee, a senior analyst at the Economist Intelligence Unit, said some independent refiners remained exposed to Western sanctions, but their operations were largely structured to mitigate the impact.
S&P Global Energy said Beijing’s response to a potential “downside shock” would be “pragmatic”, involving a diversification of its crude imports, the use of existing inventories to smooth out any short-term supply disruptions, and the introduction of policies to stabilise domestic supplies and prices.
As the world’s second-largest oil consumer, China faces a persistent structural supply gap. In 2025, it imported an estimated 11.43 million barrels per day on average, while its domestic production ran at about 4.3 million barrels per day, data from Kpler showed – though China’s electrification push is helping to mitigate its oil dependence.
Last year, China’s offshore oil industry saw its output accelerate, driven by discoveries of more than 40 million tonnes of oil and gas reserves in the Bohai Bay Basin and technological breakthroughs that improved recovery rates and extended field life.
Beijing has never acknowledged purchases of Iranian or Venezuelan crude. In 2024, the US Energy Information Administration said a significant share of Iranian crude shipped to China had been relabelled as Malaysian to evade sanctions.
Muyu Xu, senior crude oil analyst at Kpler, said sanctioned barrels were bought only by independent Chinese refiners, meaning any disruption to Iranian supply would hit teapot refiners, while state-owned firms would be largely unaffected.
“Beijing views energy security as a top priority, and it has recently emphasised the importance of building a ‘strong energy nation’, indicating its continued focus on securing stable supply,” she said.
“On the sanctions front, despite tighter measures targeting trading companies, refineries and port operators involved in the Iranian oil trade over the past year, nothing earthshaking has happened so far, and business and oil flows have continued as usual.”
Since China launched a seven-year action plan to boost upstream investment in 2019, the country’s domestic oil output has risen from about 3.8 million barrels per day in 2018 to about 4.3 million, according to the Oxford Institute for Energy Studies. But much of the increase has come from higher-cost unconventional resources, it added.
Beijing is expected to unveil its next five-year plan in March, which will set the country’s energy and industrial priorities for the rest of the decade. -- SOUTH CHINA MORNING POST
