The reduction of China's access to Iranian oil could significantly increase production costs in the country's petrochemical industry. According to existing analyses, about 10 to 15 percent of China's oil needs were supplied by Iran, and these shipments were offered to Chinese buyers at a discount due to sanctions conditions.
Impact of Sanctions on Petrochemical Feedstock Costs
Mohammad Reza Shiri, a senior analyst in the gas and petrochemical industry, pointed out that crude oil must be processed in refineries to be converted into petrochemical feedstock, explaining that the relationship between crude oil imports and petrochemical product production depends on the refinery structure and the type of feedstock consumed by each complex. In this situation, restrictions on access to Iranian oil could lead to a reduction in price advantages for Chinese buyers.
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Economic Consequences of Feedstock Shortages
A reduction in the supply of a raw material primarily increases pressure on its price, and if restrictions continue, access to it becomes more difficult. This mechanism is also observable in the petrochemical product market. With reduced access for Chinese producers to cheap energy sources, the production costs of basic petrochemical products will increase, and this pressure will be passed on to their selling prices.
This situation could negatively impact independent refineries in China, which are mostly located in Shandong province. These units are more vulnerable to rising oil purchase costs due to limited financial resources. Additionally, Chinese refineries are not designed to use Iranian oil and may turn to oil from other countries, but alternative oil may be more expensive and incur higher costs for them.
The reduced access to Iranian oil may also lead to increased demand for Russian oil. In September 2026, the offered price of Russian ESPO oil for delivery to Shandong province rose sharply. This price increase was partly due to the reduction of Iranian oil exports and partly due to supply constraints of Russian oil.
Ultimately, reduced refinery activity could impact China's petrochemical industry, as part of the raw materials for this industry is derived from crude oil processing. Therefore, a reduction in naphtha supply or an increase in its price could raise production costs for some petrochemical complexes.
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