Russian oil has begun to squeeze Iranian supplies out of the Chinese market with too big discounts. However, because of the sanctions, Iranian producers also have to reduce the price of their oil, since China remains the only major market for Iran, and Tehran cannot afford to lose its share in it. The beneficiary of the oil confrontation is China, which continues to buy record volumes of oil at prices well below the market, Bloomberg notes .

The founder of the Singapore-based analytical agency Vanda Insights, Vandana Hari, notes that the increase in the share of Russian oil in the Chinese market causes concern among suppliers from the Persian Gulf and Africa. She notes that these countries were used to stable demand from China, which regularly paid the market price, but now the situation has changed.

“Competition between Russia and Iran only benefits China,” she said.

Officially, the Chinese authorities almost do not reflect the supply of Iranian oil in customs statistics, but the industry consulting agency Kpler estimates the volume of oil imported from Iran in May and June at the level of 700,000 barrels per day. At the same time, some of these volumes have already begun to be replaced by supplies from Russia. Russian oil of the Urals brand is traded at a discount to the North Sea reference grade Brent in the region of $25, Iranian varieties - in the region of $10 per barrel.

The main consumers of “sanctioned” oil in China are small private enterprises that are prohibited from supplying oil products abroad. Their main business is supplying the domestic market. The recent tightening of COVID requirements due to a surge in the number of diseases has hit the demand for fuel and, as a result, the income of oil refineries. The agency notes that private companies will definitely not give up “sanctioned” oil in order to compensate for the losses.

To maintain the volume of demand for Iranian oil, local producers began to increase discounts in order to compete with Russian oil in the Chinese market. The agency notes that if earlier the discount was $4-5, now it is $10 per barrel. Moreover, the competition between the two “sanctioned” suppliers is forcing African suppliers to reduce their shares in the Chinese market. West Africa's Angola, Gabon and the Democratic Republic of the Congo were hardest hit, with total supplies from the region falling to 642,000 barrels per day, the lowest level since 2013.

Russia's invasion of Ukraine is fundamentally changing the oil market. The announced oil embargo by the countries of the European Union, as well as Great Britain, the USA and Canada is forcing Russia to sell its oil at a huge discount and look for alternative markets. Under the sanctions, China and India have become the main buyers of oil from Russia, which are knocking out discounts up to 30% of the market. Nevertheless, these revenues are still enough to maintain the stability of the Russian budget.