Russia and Iran Slash Oil Prices to Target China

The Federal Government of Russia and the government of Iran have entered a price war by increasing discounts on their crude oil exports to China. This competition follows a significant reduction in Indian imports of Russian crude, which are projected to fall approximately 40% from January levels to roughly 600,000 barrels per day.

Russian Urals crude is currently offered at a discount of about $12 per barrel below the ICE Brent benchmark, while Iranian Light is priced $11 below the benchmark. The primary targets for these discounted barrels are China's independent refiners, known as teapots, because state-owned Chinese refiners typically avoid sanctioned oil.

Market data shows divergent results for the two producers. Russian deliveries to Chinese ports reached a record average of 2.09 million barrels per day as of February 18. In contrast, Iranian sales to China have dropped 12% year-on-year. Despite these aggressive pricing strategies, limited refining capacity and state import quotas in China have led to an accumulation of unsold oil in floating storage across Asian waters.