Iran cuts cost of its oil to compete with Russia in China

iran cuts oil cost in china

Iran is compelled to discount its already cheap crude further even more as Russia gains a more significant foothold in the critical Chinese market.

China has become an essential destination for Russian oil as Moscow seeks to maintain slows following the consequence of its Ukrainian invasion. That’s led to amplified competition with Iran in one of the few remaining markets for its crude shipments, which US sanctions have significantly curtailed.

Russian exports to China increased rapidly to a record in May 2022, with the OPEC+ producer surpassing its cartel ally Saudi Arabia as the top supplier to China, the world’s biggest importer. While Iran has reduced its oil prices to remain competitive in the Chinese market, it’s still maintaining robust flows, likely due to rising demand as China eases strict COVID-19 restrictions that had crushed consumption.

Vandana Hari, the founder of Vanda Insights in Singapore, said that the only competition between Russian and Iranian barrels might end up being in China, which would work entirely in China’s favor. This would also make the Gulf producers uneasy as they will see their prized markets taken over by heavily discounted crude oil.

According to oil traders, oil has been priced at almost $10 a barrel below Brent futures to put it on an equality with Urals cargoes scheduled to arrive in China in August. That compares with a discount of nearly $4-$5 before the Ukrainian invasion. Iran’s Heavy and Light grades are most compatible with the Urals.