At midnight on March 10, China increased domestic gasoline and diesel prices under the country’s fuel pricing mechanism, according to China’s National Development and Reform Commission. The agency announced that gasoline prices would increase by 695 yuan per ton ($100 per ton), about 7%, while diesel would increase by 670 yuan per ton ($97 per ton). The announcement spurred long lines at gasoline stations as residents wanted to fill their tanks before the price increase took effect. In some cities, the waiting vehicles formed long traffic queues extending nearly two kilometers onto nearby roads.
According to Vision Times, converting to retail prices, the increase translates to approximately:
- 0.55 yuan per liter (30.3 cents per gallon) for 92-octane gasoline
- 0.58 yuan per liter (31.8 cents per gallon) for 95-octane gasoline
- 0.57 yuan per liter (31.4 cents per gallon) for diesel
Prices for 92-octane gasoline in many regions were approaching or exceeding 7.5 yuan per liter ($4.129 per gallon), while 95-octane gasoline in some areas reached eight yuan per liter ($4.39 per gallon). For a typical private vehicle with a 50-liter fuel tank (about 13 gallons), filling up with 92-octane gasoline will now cost about 27.5 yuan ($4) more per tank. At 7.5 yuan per liter, a tank of gas would cost roughly $54.
Prior to the conflict with Iran, in the first two months of the year, China adjusted petroleum prices four times, with three increases and one unchanged cycle. The current adjustment, due in part to the closure of the Strait of Hormuz, is the fifth fuel price revision of the year. China is the world’s top oil importer, importing more than 70% of its oil, and has been taking measures, including banning refined fuel exports, to ensure supplies for domestic consumption amid the conflict in the Middle East. China has the largest domestic refining capacity in the world.
Despite the higher prices, some fuel retailers in China are facing shrinking profit margins. Wholesale prices for gasoline and diesel have risen with oil prices, while retail prices remain capped under China’s pricing system, narrowing the gap between wholesale and retail prices. Theoretical profit margins for major diesel distributors had dropped to about 666 yuan (about $97) per ton as of March 6th, down nearly 59% from the previous period. Profit margins for gasoline and diesel at independent refineries also declined significantly.
Iran Still Delivers Oil to China
Despite the closure of the Strait of Hormuz, through which 20% of global oil flows, mostly to Asia, Iran has continued to ship oil at a rate of 1.1 million to 1.5 million barrels per day. China buys 90% of Iran’s sanctioned oil exports at below market prices. Iranian oil accounts for 11.6% of China’s seaborne imports this year, mostly bought by independent refiners due to the discounted price.
Ninety percent of Iran’s oil shipments have been leaving via Kharg Island, where the United States attacked military bases and possibly obliterated them, although their oil facilities were spared. President Trump said the United States would strike the export terminal if Iran kept attacking vessels in the Strait of Hormuz. Kharg is located 16 miles from Iran’s coast and about 300 miles northwest of the Strait of Hormuz. Its deep waters enable the loading of oil tankers that are too large for the mainland’s shallow coastal waters.
According to Reuters, Iran has exported 1.7 million barrels per day of oil so far this year, of which 1.55 million barrels per day were shipped via Kharg. Kharg has storage capacity for about 30 million barrels, and held about 18 million barrels of oil as of early March. As OPEC’s third-largest oil producer, Iran supplies about 4.5% of global oil consumption, producing about 3.3 million barrels per day of oil and 1.3 million barrels per day of condensate and other liquids.
The Epoch Times reports that Iranian oil shipments to China have remained largely unaffected by the war because of contingency planning by China and Iran. Several years ago, China began the groundwork for an alternative oil transport route from Iran. Jask Port, outside the Strait of Hormuz, allows tankers to enter the Gulf of Oman without passing through the strait. China supported the construction of a 1,000-kilometer pipeline linking the inland oil hub of Goreh to the Jask terminal on the Gulf of Oman. The project was part of the 25-year cooperation agreement signed between China and Iran in 2021.
China’s continued purchase of Iranian oil provides Iran with financial support to sustain the conflict and allows China to secure discounted oil and expand its strategic energy reserves as global oil prices continue to rise. China’s strategic and commercial oil reserves already total 1.3 billion barrels.
Analysis
China and Iran’s close economic relationship means that China is heavily invested in the war in Iran, despite its lack of a military presence in the region. Although China and Iran implemented a contingency plan with the Jask Port, it has rarely been used because it’s viewed as less efficient, according to CNBC. How the war continues will affect where China gets its oil in the future. As IER’s Caleb Jasso explains for RealClearEnergy, “If the war continues to escalate, or perhaps if Kharg Island’s energy infrastructure, which processes 90% of Iran’s oil for export, is attacked or occupied, China could potentially lose close to 20% of its seaborne imports. If the war leads to a regime change in Iran more favorable toward the West, or Iran’s ability to export discounted oil to China is impacted by either military action or the lifting of sanctions, it will be forced to aggressively diversify its seaborne oil imports.”
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