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The collapse of Iran will not only create an energy problem but also pose a systemic risk to China’s economy, which has grown dependent on deep discounts
Ambassador Amir Saeid Iravani, Permanent Representative of Iran to the UN, and Fu Cong, China’s permanent representative to the UN, speak before a UN Security Council meeting. (Image: Michael M Santiago/Getty/AFP)
China is facing a significant energy security crisis as its heavy reliance on discounted Iranian oil has no viable alternative. Iran’s unique combination of large volumes, deep discounts, and its willingness to defy western sanctions makes it irreplaceable, sources told News18.
According to the sources, Russian oil, though an option, offers only minimal discounts of around $1 per barrel and has limited supply. Venezuelan oil, on the other hand, is of low quality and difficult to transport to China while Malaysia’s re-export of Iranian oil could cease if sanctions are strictly enforced, and the leadership is hesitant to take such risks, the sources said.
The sources said the collapse of Iran will not only create an energy problem but also pose a systemic risk to China’s economy, which has grown dependent on these discounts. A regime change in Iran could redirect trades back to dollars, undermining the country’s currency ambitions. If this happens, it might face an additional $20-30 billion in oil costs annually, as Iranian oil will re-enter the open market, they said.
They further said the collapse of the current regime will damage China’s deals under the Belt and Road Initiative (BRI) in Iran and Central Asia. The current discounts exist because Iran is under western sanctions, making China the primary buyer with significant bargaining power, they added.
Losing this monopoly and the associated discounts will heavily impact the small teapot refineries, primarily in Shandong, which have been built around cheap Iranian oil, the sources said. If these discounts disappear, 40 per cent of these refineries may collapse, leading to massive job losses and fuel shortages, they added.
In fact, President Xi Jinping has said China is “deeply worried” about Israel’s military operation against Iran that has escalated tensions in the Middle East. His public statement on Tuesday was the first on the conflict that erupted on June 13.
Xi, speaking on the sidelines of a summit with five Central Asian nations in the Kazakh capital of Astana, said China opposes any actions that infringe upon the sovereignty, security, and territorial integrity of other countries.
“All parties should work to de-escalate the conflict as soon as possible and prevent the situation from worsening further,” Xi said, in comments quoted by Chinese state broadcaster CCTV.
He said China is ready to play a constructive role in restoring peace and stability in the Middle East. The Chinese foreign ministry said it had begun evacuating its citizens from Israel and Iran and was pushing for a ceasefire, as fighting continued for a fifth day.
Chinese authorities are in communication with Iran, Israel and various parties to promote a ceasefire, foreign ministry spokesperson Guo Jiakun told a regular press briefing. “China calls on all relevant parties, especially those countries that have a special influence on Israel, to shoulder their due responsibilities, take immediate measures to cool down the tense situation and prevent the conflict from escalating and spreading,” he said, without naming any countries.
Group Editor, Investigations & Security Affairs, Network18
Group Editor, Investigations & Security Affairs, Network18
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