On the 10th, the Chinese language website of French RFI published an article stating that China is "strengthening its oil and natural gas reserves in the face of a blockade of the Strait of Hormuz."

According to the article, in order to mitigate the impact of the Middle East war, the Chinese government has urged independent small and medium-sized refineries, known as "teapots," which do not belong to state-owned oil companies, to produce fuel by all means. However, as the losses of the teapots expand, this requirement may be relaxed.

Unlike state-owned majors, teapots procure crude oil not by signing long-term contracts, but intermittently in small amounts, as if pouring water from a teapot.

Thanks to the "cheap crude oil" procured by teapots, Iran was able to get through a period of extremely low refining profits. However, as the U.S. intensified trade sanctions to pressure Iran into a peace agreement, this cheap crude oil virtually disappeared. As a result, Iran's crude oil exports to China plummeted to approximately 1 million barrels per day in May, the lowest level since January 2025.

To attract Chinese buyers facing rapidly declining demand, the July delivery price of Iranian light crude oil was discounted by more than $1 from the market price. At the same time, crude oil prices in the Russian Far East also fell.

According to analysts and industry insiders, China is expected to increase its crude oil inventory drawdown, and Chinese refineries are anticipated to further reduce imports and maintain production restrictions to minimize refining losses.

To protect the country from the impact of surging crude oil prices in the Middle East, the Chinese government has taken a series of measures, including maximizing domestic drilling, restricting fuel exports, and issuing additional import quotas to encourage discounted purchases of Russian and Iranian crude oil.

According to data analytics firm Kpler, crude oil imports via sea in May could decrease from 8.1 million barrels per day in April to 6.451 million barrels per day, the lowest in a decade. Vessel tracking company Vortexa estimates May imports at 7 million to 7.5 million barrels per day. Prior to this, China's total crude oil imports in April fell by 20% year-on-year to 9.3 million barrels per day. China is expected to seriously draw down its crude oil inventories as imports fall to their lowest level in a decade. (Translation/Editing by Yanagawa)