As the European Union (EU) moves towards phasing out Russian oil imports by end of this year, China is planning to restock its strategic petroleum reserves with discounted Russian oil, Bloomberg reported on Thursday.
According to sources, discussions have been going on at the governmental level, with little to no direct involvement from oil companies. However, no details about the volumes have been revealed, or that the deal may even take place. In fact, earlier this month, Chinese Ambassador to Russia Zhang Hanhui told the Russian state-owned media outlet, TASS, that the two countries had become “important strategic partners in the oil and gas sector” in recent years. “The energy sector of China is notable for the vast potential and growing demand,” he added.
BACKGROUND-
— Phil Stewart (@phildstewart) May 19, 2022
India, the world's No. 3 oil importer, boosted Russian oil imports in April to about 277,000 barrels per day, up from 66,000 bpd in March as refiners snap up cheaper oil shunned by many Western countries and companies. China is also picking up discounted Russian oil https://t.co/45UEfD6Fe1
According to Vortexa Analytics, Russia will supply 1.1 million barrels per day (bpd) in May to China through tankers from its Black Sea, Baltic Sea and Far East ports, which is higher than 750,000 bpd in the first quarter and 800,000 bpd in 2021. Separately, another 800,000 bpd will be transported via the East Siberian and Atasu-Alashankou pipelines under existing government contracts, bringing the total quantity to about 2 million bpd in May, which is 15% of China’s total consumption.
“There is still room to replenish stocks and it would be a good opportunity for them to do so, if they can be sourced on commercially attractive terms,” Jane Xie, a senior oil analyst at Kpler, said. In a statement on Thursday, the National Development and Reform Commission noted that in order to ensure a stable supply of oil and gas amid skyrocketing prices, China will “organise relevant enterprises to vigorously enhance domestic oil and natural gas exploration and development efforts, organise resource import in various ways, and maintain safe and stable operation of refineries.”
This latest development comes a month after Beijing had warned its state-owned oil companies against buying any additional Russian oil from May onwards, apart from the existing agreements, for fear of being looked at as a supporter of Russia’s invasion of Ukraine and thereby potentially exposing its companies to sanctions. China has not condemned Russia for the Ukraine war and has instead criticised the barrage of Western sanctions imposed on it.
China, the world’s largest oil importer, has cut its Iranian oil imports since the start of the Ukraine war. It imported about 930, 000 bpd of Iranian crudes in March, which dropped to 755,000 bpd in April. “Nobody’s looking at Iranian crude any more as Russian grades are of much better quality and at lower prices. Iranian oil sellers are under severe pressure,” a trader with a Chinese refiner revealed, adding that the Urals delivered to Beijing were at a $9 discount per barrel for June delivery. Therefore, Iran needed to offer discounts of $12 to $15 simply in order to compete.
In this regard, a European trader noted, “You can legally buy Russian oil at discount, but Iranian oil continues to be the subject of sanctions, so naturally people go for the easier option,” in reference to the strict American sanctions on Iran’s exports.
Tehran is also in talks with Moscow to establish joint companies, banks, and funds to trade oil while under sanctions. A source disclosed that Russia wants to know how Iran navigates transport, trade and banking. More discussions are slated to take place when Russian Deputy Prime Minister (PM) Alexander Novak visits Iran next week.
Meanwhile, the United States (US) has been mulling over options with its allies on how to decimate the Russian energy sector. According to US officials, one of the potential measures could be imposing a price cap on Russian oil, followed by secondary sanctions, and blocking them from working with American companies.
Furthermore, US officials are talking about asking companies to pay a below-market price for Russian oil or face sanctions. Currently, a Russian oil barrel costs more than $100; therefore, capping it at $40 would significantly dent Moscow’s profits. Moreover, if the EU, too, decides to put a price cap on Russian oil, other buyers would also insist on paying the same rate.
The US empire is creating a global economic iron curtain, by insanely threatening secondary sanctions that would punish foreign countries and businesses that buy Russian oil
— Benjamin Norton (@BenjaminNorton) May 20, 2022
So Washington is telling the world they have to economically choose between either the US or Russia/China pic.twitter.com/DrfrWg3IHI
While the US banned Russian oil imports in March, the EU is still figuring out ways to stop its dependency on Russian oil. US Secretary of Treasury Janet Yellen admitted talking about other options to reduce Russia’s oil incomes apart from imposing an oil embargo. “The objective is to keep some Russian oil flowing to the market to hold down global prices so we don’t have undue negative impacts on third countries,” Yellen told reporters in Germany on Thursday. According to retired Gen. Arnold Punaro, the US is already in a “dangerous situation.” “What bothers me is even though the Europeans say they’re going to stop buying Russian oil since the conflict started, they bought over $80 billion worth of Russian oil. […] So we ought to seriously look at blocking the oil that would go to China and basically not allow them to beef up their reserves,” he told Fox Business.
Moreover, the US wants the next package of sanctions to be in coordination with its European and Asian allies. Some European officials feel that imposing a price cap would be too challenging. As far as Asia is concerned, while China has not given any military and economic support to Russia as yet, India has already increased its purchase of discounted Russian oil. New Delhi’s Russian oil imports are reportedly set to reach more than 30 million barrels in June – double what it imported in 2021.
Additionally, Russia’s Economic Development Ministry released a statement, saying that it expects the prices of Russian Urals oil and natural gas to decrease consistently for the next three years. In this respect, China appears to be waiting for the Russian commodities’ prices to fall further before signing any new agreement.