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Earlier this week, two important deals were announced that cemented Saudi Arabia’s position as one of the key suppliers of crude oil to China for decades to come.
China has been one of the biggest customers of Saudi Aramco for many years, but the export volumes are quite volatile and somewhat unpredictable. China has many crude oil suppliers, and its buyers tend to be quite price sensitive.
Competitive (below market) pricing has encouraged some Chinese refiners to continue importing crude oil from Iran and Venezuela, for example, despite U.S. sanctions.
After the invasion of Ukraine, China has boosted its purchases from Russia for the same reason. Market reports suggest that Russia has recently surpassed Saudi Arabia as the largest supplier of crude oil to China. However, China does not focus on price alone. Given its limited domestic supplies, China also values product quality, reliability, and diversity of supplies.
This is where Saudi Arabia has an edge. It also has the resource base, financial ability, and patience to play the long game. Over the years it has invested in and secured supply contracts with key customers in the U.S., Europe and most notably Asia.
After making significant investments in South Korea and Malaysia, a deal to buy a minority stake in India’s largest refiner fell through in 2021. The Saudis stuck to their strategy and have now been able to expand their footprint in China, by far the largest crude oil importer in the world.
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