Chinese Refiners Snap Up Iraqi Oil as Gulf Supply Routes Fracture

Chinese refiners are acquiring Iraqi crude oil, according to recent reports from Bloomberg. These purchases include 8 million barrels of Basrah Heavy and Basrah Medium that will be delivered promptly, based on unnamed trader insights. Despite the ongoing Iranian blockade, oil has continued to flow through the Strait of Hormuz, Iraq's primary export route.

However, the blockade has significantly reduced these shipments, with only 95 vessel crossings reported for the week of August 17, down from 118 the previous week, as per Marine Traffic data. Some tankers have circumvented the blockade by turning off their transponders, rendering them invisible to vessel-tracking systems. Nonetheless, this measure has not substantially restored oil flows to pre-war levels.

The situation has been further complicated by Saudi Arabia's need to reroute its oil exports from Hormuz due to Houthi attacks on its tankers and energy infrastructure. To circumvent these strikes, Saudi crude is now being transported to the Red Sea and then to Egypt via the port of Yanbu, utilizing a route with a lower tanker capacity compared to Bab el-Mandeb.

In response, Iraq has managed to increase its exports via the Strait of Hormuz, exporting crude at a rate of 2 million barrels daily since the beginning of the month, as reported by Bloomberg's state oil marketing company. This increased Iraqi supply should aid Chinese refiners in compensating for some of the supply delays from Saudi Arabia, which will take longer to reach China due to the challenges associated with the Red Sea and Bab el-Mandeb route.

Additionally, Chinese refiners have also been purchasing Emirati crude. In a spot tender at the end of July, Chinese major refiners such as Sinopec, PetroChina, and Sinochem bought approximately 2 million barrels of Upper Zakum crude, with ADNOC selling a total of 12 million barrels at the tender, as reported by Reuters.