On Wednesday, the Chinese Communist Party revealed that it has greatly broadened the understanding of the country’s oil and gas reserves, announcing the discovery of 225 “large and medium-sized crude oil and natural gas fields” from 2021 to 2025.
Despite being the largest oil importer globally and facing high demand for fuel, China lacks enough domestic oil reserves to satisfy that demand. It’s often assumed that China isn’t a significant oil exporter due to its domestic needs, but that’s not entirely accurate; it ranks as the fifth largest oil producer. Additionally, the country hosts numerous small “teapot” refineries, which process both local and foreign crude oil.
The announcement comes as China grapples with immense fuel demand, exacerbated by the ongoing tensions between the U.S. and Iran in the Middle East. As a close ally of Iran, China finds itself most affected by shipping restrictions in the Strait of Hormuz. U.S. sanctions have increasingly targeted these teapot refineries for processing Iranian crude, which contravenes international sanctions. Over the past month, Iranian officials have attempted to hinder civilian shipping through the strait as leverage, while the U.S. has enforced a naval blockade on Iranian vessels, many heading towards China.
Chinese leadership, including Xi Jinping, has expressed visible frustration regarding these disruptions and urged parties to halt interference with shipments. Reports indicate that China’s economy has significantly suffered recently as oil import guarantees have been uncertain. Crude oil is essential not just for various fuels like gasoline, but also for manufacturing plastics and numerous consumer products, making it critical for the world’s largest manufacturing nation.
Officials from the Ministry of Natural Resources noted that more than 200 oil and gas fields have been identified. This includes 13 oil fields with over 100 million tons of reserves and 26 gas fields holding more than 100 billion cubic meters, according to government reports.
Niu Li, a ministry official, shared at a press conference that the government is actively seeking to reduce its energy dependence and is eager to discover new oil and gas sources to maintain energy security. State reports suggest that China is set to surpass its own oil production records by 2025, marking a new phase of focus on strategic mineral exploration.
Currently, domestic crude oil production accounts for around 27% of the market share, with approximately 73% reliant on imports. Relying heavily on foreign oil, China faces challenges, particularly as one-third of its necessary oil must flow through the Strait of Hormuz, where the ongoing Iran conflict has greatly impacted supply. Furthermore, the teapot refining sector is largely sustained by Iranian crude. Recent estimates indicated that about 90% of Iranian crude oil shipments—around 1.8 million barrels per day—were directed to China’s teapot refineries last month.
In light of China’s support for the Iranian government, the U.S. Treasury has imposed new sanctions against Hengli Petrochemical, a teapot refinery in Dalian, for processing Iranian oil.
“The independent China-based Teapot Refinery continues to play a critical role in sustaining Iran’s oil economy, and Hengli is one of Iran’s largest customers for crude oil and other petroleum products, acquiring billions in Iranian oil,” the Office of Foreign Assets Control noted when announcing the sanctions.
The Chinese government has primarily blamed the U.S. for escalating military actions against Iran, which they argue has led to the current crisis. However, unlike previous conflicts, there have been instances where Beijing has called for peace, albeit without directly condemning Iran, hinting at some internal dissatisfaction within the Communist Party with its ally. For instance, during a recent phone call with Saudi Crown Prince Mohammed, Xi Jinping advocated for free navigation in the Strait of Hormuz, carefully avoiding condemnation of any parties involved. This silence on the U.S. response was notable.
“President Xi emphasized that China calls for an immediate and comprehensive ceasefire, supporting all efforts leading to peace restoration and advocating for political and diplomatic solutions to the conflict,” a statement from the Chinese Foreign Ministry noted. “The Strait of Hormuz should remain open to normal navigation to benefit regional countries and the global community.”
