China’s independent refiners, known as “teapots,” are facing growing challenges in securing Iranian crude oil, prompting a significant shift in their sourcing strategies. Iranian oil, traditionally a cost-effective option for these refiners, has become increasingly scarce and expensive. This is largely due to the broadening of U.S. sanctions in October, targeting tankers involved in the covert transport of Iranian oil to China. These sanctions have disrupted operations for what is commonly referred to as the “dark fleet”—a network of tankers that discreetly transport Iranian crude using ship-to-ship transfers, often in regions like Malaysia, to obscure its origin.
The tightened sanctions have reduced the number of operational vessels, cutting the supply of Iranian oil available to China and driving up prices. Iranian crude exports to China fell by over 10% last month compared to October, according to industry reports. The rising cost and logistical challenges associated with Iranian crude have made it less attractive for cost-conscious Chinese refiners. Some teapots are now stepping back from purchasing Iranian oil altogether, partly due to concerns about U.S. sanctions affecting their access to international banking systems.
As a result, China’s teapots are increasingly exploring alternative sources in the Middle East and Africa. Historically, Iran accounted for around 10% of China’s total oil imports, with shipments peaking at 1.1 million barrels per day in 2023. However, with Iranian supply faltering, countries like Libya are emerging as timely options to fill the gap.
Libya’s National Oil Corporation (NOC) recently reported a significant boost in crude oil production, now reaching 1.37 million barrels per day, with gas production nearing 200,000 barrels daily. This growth is supported by successful well restarts and infrastructure investments by companies like Mellitah Oil and Gas and Al-Waha Oil Company. Al-Waha, in particular, achieved its highest production levels in 11 years.
Libya has been a key exporter to China, with crude oil shipments worth $6.29 billion in 2019 and $2.52 billion in 2022, despite ongoing internal conflicts. The timing of Libya’s production surge aligns with China’s need for diversified and reliable energy sources, offering a viable alternative amidst the global supply chain disruptions.
China’s shift underscores the complexities of the global oil market, where geopolitical pressures, sanctions, and evolving production landscapes are reshaping energy strategies. By diversifying its imports across the Middle East and Africa, China is adapting to an increasingly unpredictable energy environment.
