Russia Could Overtake Saudi Arabia in Competition for China’s Oil Market

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Competition For China's Oil.

Thanks to its heavily discounted crude, Russia has won China’s favor over the last year, at certain points even overtaking Saudi Arabia as the country’s main exporter. The Russian invasion of Ukraine early last year, and subsequent sanctions on Russian energy, have led Russia to reduce the price of its oil and gas to encourage countries in Asia and other parts of the world to increase their imports. This has put Russia and Saudi Arabia in competition for China’s oil market. 

However, China has big plans to deepen its trade and business ties with Saudi Arabia, meaning it is still unclear how the future of the China-Russia relationship will look. 

China’s Biggest Oil Exporter 

This month, a Wall Street Journal article stated that Russia is on the cusp of overtaking Saudi Arabia as the biggest oil supplier to China. This had already been suggested by other media sources earlier in the year, as Russia overtook Saudi Arabia as China’s biggest crude supplier in the first two months of 2023. Since Russia invaded Ukraine early last year, several state powers have increased their imports of Russian oil and gas because of the low price point. While some countries, including EU member states and the US, have introduced sanctions on Russian energy to condemn the conflict and encouraged others to do the same, many powers are using this as an opportunity to stockpile low-cost oil and gas. 

Two of the biggest importers of Russian energy at present are China and India. Russia is undercutting the Organization of the Petroleum Exporting Countries (OPEC+) significantly, selling its crude at heavily discounted prices to ensure its energy revenues remain stable during a time of economic turmoil. This has led to falling oil prices despite production cuts by OPEC intended to boost prices. While OPEC member states may be growing increasingly unhappy with Russia, whose oil industry it continues to support, Russia is prioritizing maintaining its energy export partnerships over keeping OPEC happy. And it appears to be succeeding. 

The Battle Between Russia and Saudi Arabia 

Russia and Saudi Arabia are now battling for domination of China’s energy market, the biggest in the world. For several years, Saudi Arabia has been China’s top oil supplier. In 2022, China purchased the equivalent of 1.75 million bpd of crude from the world’s biggest oil producer. But according to Chinese government data, Russia overtook Saudi Arabia to become China’s biggest crude supplier earlier this year. This figure has gone back and forth, meaning the two countries are continuing to battle for China’s energy business, with Russia looking like it could take the lead. 

Russian shipments of crude to China account for around 14% of its supplies, an increase from 8.8% before the war. Meanwhile, Saudi Arabian oil supplies account for around 14.5% of the total. A similar pattern has been seen in India, which has reduced its Saudi Arabian oil imports from a 20% market share before the war to a 13% share now while increasing its Russian imports from 3% to 40%. China and India have both remained neutral in the conflict, refusing to condemn Russia’s actions or to introduce sanctions on Russian energy. While they claim to support a peace agreement, revenues earned from Russia’s oil exports to China and India are undoubtedly contributing to the ongoing war effort. 

China appears to be stockpiling Russian crude just in case the price of oil begins to rise once again, a smart move considering the soaring energy prices of 2022. It added around 1.77 million bpd to its inventories in May, the largest amount since 2020. But as this drives the global oil benchmark down, with Brent standing at $75 a barrel, Russia is antagonizing Saudi Arabia, which needs oil prices to be around $81 a barrel to support its economy. However, although Russia’s energy relationship with China appears strong, the Asian superpower has been strengthening its economic partnership with Saudi Arabia in recent months, with plans to establish greater energy and trade links in the coming years. 

The Long-Standing China-Saudi Relationship 

In December 2022, Saudi Arabia hosted the China-Arab Summit, which included a state visit from Chinese President Xi Jinping. Jinping and Saudi Crown Prince Mohammed bin Salman discussed trade ties and regional security, deciding to align across several policy areas without interfering in each other’s internal affairs. And in March this year, China and Saudi Arabia announced they had plans to work in partnership on the construction of a landmark $10-billion refinery in the north-eastern Liaoning province of China, with funding from Saudi’s state-owned Aramco; solidifying the partnership between the world’s largest importer and its largest exporter. Saudi’s Energy Minister, Prince Abdulaziz bin Salman, confirmed that the Kingdom was looking for greater cooperation with China on trade and energy, rather than competition. 

While China’s high level of imports from Russia are helping keep its energy industry afloat, with sanctions preventing other countries from buying Russian oil and gas, it is unclear whether this relationship will last. China and Saudi Arabia have a long-standing energy partnership and have recently agreed to align on other areas of trade and business, meaning China will likely continue importing large amounts of crude from the Middle Eastern oil giant. However, as Russia continues to sell its oil at a heavily discounted price it will remain highly attractive in the Asian market.

Author Felicity Bradstock

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