China’s oil strategy is unraveling faster than Beijing expected. For more than a decade, China quietly built an advantage in global energy markets by buying oil that others could not touch. Sanctions, political isolation, and financial desperation forced countries like Iran, Venezuela, and later Russia to sell crude at steep discounts. China stepped in as the buyer of last resort and locked in cheap supply.
That system is now breaking down almost all at once.
With the United States asserting control over Venezuela’s oil exports, imposing new penalties tied to Iranian trade, and Russian flows already constrained by sanctions, China is facing an oil squeeze that is immediate, structural, and costly. This is no longer a distant vulnerability. It is an unfolding crisis.
China’s Oil Model Depends on Discounted Barrels
China is the world’s largest crude importer, and a large share of its supply has come from sanctioned states. Iran has supplied up to one fifth of China’s imported oil. Venezuela contributed another 4% to 5%. Russia became China’s top supplier after Europe cut itself off from Russian crude.
What made these supplies valuable was not just availability, but price. Iranian oil has traded at discounts of roughly $10 per barrel to Brent. Venezuelan crude sold even cheaper through debt repayment and barter arrangements. For China’s independent refiners, these discounts were essential. Without them, margins collapse.
That advantage is disappearing.
Venezuela’s Oil Has Slipped Out of China’s Hands
Venezuela was never just another supplier for China. It was a controlled source of cheap heavy crude tied to long running oil backed loans. That arrangement has effectively ended.
After the removal of Nicolas Maduro, the United States moved to take control of Venezuela’s oil sales and says it will manage them indefinitely. China is still allowed to purchase Venezuelan oil, but only at fair market prices and without priority access. Most Venezuelan crude is now being directed toward the United States, with the remainder sold openly into global markets.
Before this shift, Venezuelan oil was selling for roughly $31 per barrel. Under the new structure, sales have been closer to $45 per barrel. That price jump wipes out China’s discount overnight.
China imported about 389,000 barrels per day of Venezuelan oil last year. Those volumes are now expected to drop sharply, beginning almost immediately, as tanker movements tighten under US control.
Venezuela is no longer a dependable pillar of China’s energy strategy.
Iran Is China’s Largest Fallback, And It Is at Risk
As Venezuelan supply fades, China has leaned even harder on Iran. At times last year, nearly all of Iran’s exports, up to 2 million barrels per day, flowed covertly to China through shadow fleets, ship to ship transfers, and relabeling schemes designed to evade tracking.
That system depends on political stability inside Iran and limited enforcement pressure abroad. Both conditions are eroding.
Iran is now in the middle of violent nationwide unrest, mass arrests, threats of rapid trials, and an extensive internet blackout. At the same time, the United States has imposed a 25% tariff on Iran linked trade, sharply raising the risk for companies and intermediaries involved in those shipments.
If unrest deepens or enforcement tightens further, China’s cheapest and most flexible source of oil becomes vulnerable to sudden interruption.
The Discount Era Is Ending, and the Costs Are Rising
China’s oil advantage was built on buying crude below market prices when others could not. Iranian Heavy trading at double digit discounts and Venezuelan crude sold far below global benchmarks allowed Chinese refiners to survive and expand.
Losing those discounts changes everything.
Independent refiners cannot simply replace sanctioned oil with higher priced barrels without destroying margins. Analysts warn that while Russian and Iranian crude may still be available in the short term, refiners are unlikely to aggressively bid for non sanctioned oil because doing so would undermine their business model.
This means China faces a narrowing set of options, none of them cheap.
Domestic Production Cannot Fill the Gap
Beijing anticipated supply risk and invested heavily in domestic oil production. Since 2019, China has poured billions into new drilling, shale development, and offshore projects. Output rose from about 3.8 million barrels per day in 2018 to roughly 4.32 million barrels per day last year.
But the gains are misleading. New production has largely been used to offset declines from aging legacy fields like Daqing and Shengli. Analysts describe the effort as running hard just to stand still.
There is no surge capacity waiting to be unlocked. Domestic oil cannot compensate for a sudden loss of imports from Iran or Venezuela.
Shipping Routes Add Strategic Pressure
Even if China finds alternative sellers, geography remains a major weakness. Most of China’s imported oil passes through the Malacca Strait, a narrow and congested route long viewed by Beijing as a strategic vulnerability. The strait is patrolled by the US Navy and has been treated by Chinese planners as a potential chokepoint during periods of tension.
China’s oil problem is therefore not just about supply, but about control over delivery.
Stockpiles Buy Time, Not Security
China has been accelerating the expansion of its strategic petroleum reserves. Combined with commercial stocks, China has roughly 110 days of oil cover, already above the OECD benchmark. The stated goal is 180 days, and stockpiling efforts are intensifying.
But reserves only delay the pain. They do not remove it. If discounted supply continues to erode, reserves will be drawn down faster and refilled at higher prices.
An Energy Squeeze With No Easy Exit
China’s oil system was designed for a world where sanctioned producers controlled their own exports and Western enforcement was uneven. That world is fading quickly.
With Venezuelan oil redirected under US oversight, Iranian supply threatened by internal collapse and external pressure, and Russian flows already constrained, China is losing access to cheap, flexible energy just as geopolitical risk is rising.
Beijing can still buy oil, but it is losing the ability to buy it cheaply, quietly, and on its own terms. What once looked like a manageable long term vulnerability is now turning into an immediate strategic squeeze, one that hits prices, refiners, shipping routes, and political leverage all at once.
For China, the question is no longer whether an oil shock is coming. It is whether the country can absorb it before the damage spreads across its economy.
FAM Editor: This is revealing in yet another way. Venezuela and Iran, under the thumb of China, have crappy economies and suffering populations, subservient to the needs of China. They should both be very rich countries, and yet they are not. This shows that association with a totalitarian socialist nation like China means that they own you.
