China’s refiners pivot to Iraqi crude as US blocks Iranian oil

China’s independent refiners are turning to Iraqi crude oil as a US blockade disrupts supplies from Iran, their traditional source. State-owned refiners have already secured most available Russian barrels, leaving private processors, including smaller teapot refiners in Shandong province, to seek alternatives. These refiners have purchased Iraqi Basrah Heavy and Basrah Medium grades for November delivery at premiums up to $18 per barrel above ICE, indicating an urgent need for immediate supplies rather than a rebound in demand.

At least 50 tankers carrying Iranian crude remain stranded along China’s coast due to the US blockade, which aims to pressure Iran to end its war on terms favorable to Washington. Some Shandong teapot refineries may deplete their inventories by the end of the month, forcing them to compete for limited alternatives as Beijing issued new crude-import quotas. Muyu Xu, senior crude analyst at Kpler, noted that refiners must secure alternative supplies quickly to avoid shutting down or cutting run rates.

The supply shortage has pushed processors toward sulfur-rich Basrah crude, which they typically avoid in favor of cheaper Iranian barrels and diesel-rich ESPO from Russia’s Far East. Increased Middle Eastern flows are making Iraqi crude more accessible as Gulf producers transport more oil through the Strait of Hormuz. Producers in the region are offering larger discounts to protect market share after reduced prices for their flagship grade for Asian buyers.

Russian barrels remain expensive, with ESPO trading at a premium of almost $30 per barrel above Brent. Buyers of Iraqi crude include both private processors in Shandong province and some large independent refiners. Iraqi barrels are marketed by trading houses including Vitol Group, Trafigura Group, and Mercuria Energy Group, as well as TotalEnergies SE. Before the blockade, Iran supplied over 1 million barrels per day to China’s independent refiners, with private processors as the main buyers due to steep discounts on sanctioned barrels that improved refining margins.