China Cuts Saudi Oil Buys Amid Hormuz and Red Sea Disruptions, Turns to More Russian Crude Settled in Yuan

China, the world’s largest crude oil importer, is sharply reducing purchases from Saudi Arabia as disruptions in the Strait of Hormuz and the Houthi blockade and attacks in the Red Sea constrain Middle East supply routes. In response, Chinese refiners are ramping up imports of Russian crude, with a significant share of that trade settled in Chinese yuan rather than US dollars.

Saudi Arabia has long been one of China’s top oil suppliers, with most of those sales traditionally priced and settled in US dollars. Volumes have plunged since the outbreak of the US-Iran conflict earlier in 2026, which effectively closed or severely restricted the Strait of Hormuz—the critical chokepoint for Persian Gulf exports. Saudi Aramco’s monthly allocations to Chinese buyers have fallen to record lows, in some cases dropping to roughly one-third or less of pre-war averages of around 40 million barrels per month. Major Chinese refiners, including Sinopec, have skipped or sharply cut term cargo nominations for recent months.

Compounding the problem, Yemen’s Iran-aligned Houthis declared a blockade targeting Saudi-linked shipping in the Red Sea in mid-July 2026. This has complicated alternative export routes via Saudi Arabia’s Red Sea terminal at Yanbu and the Bab el-Mandeb strait. While some Chinese-linked tankers carrying Saudi crude have successfully transited after Beijing engaged the Houthis for safe passage, overall flows remain constrained and riskier.

To offset the shortfall, China’s state-owned Sinopec, the world’s largest refiner by capacity, has significantly increased purchases of Russian Far East crude, particularly the ESPO blend loaded at Kozmino. Trade sources and ship-tracking data indicate Sinopec secured 30 to 40 cargoes (roughly 241,000–320,000 barrels per day) for July–September delivery. These short-haul shipments take about a week to reach Chinese east-coast ports, offer greater delivery certainty, and often carry price advantages compared with longer-haul or disrupted Middle East grades.

A notable feature of the expanded Russia-China oil trade is settlement in Chinese yuan. Since the early phase of the Ukraine conflict and subsequent Western sanctions, a large majority of bilateral energy and broader trade between the two countries has shifted to yuan and rubles, bypassing the dollar-dominated system. Sinopec’s recent Russian purchases continue this pattern, conducted via intermediaries and denominated in yuan.

The shift reflects both immediate supply pragmatism and longer-term efforts by Beijing to diversify energy sources and reduce reliance on dollar-settled trade. China’s overall crude imports have fallen substantially—by roughly 40% or more in peak disruption months—as refiners draw on large domestic inventories, cut runs, and limit product exports. Analysts note that Russian barrels, with their shorter transit times and non-dollar payment options, fit the current priority for reliability and cost control amid ongoing Middle East volatility.

Saudi Arabia continues to compete aggressively on price, offering deeper discounts to Asian buyers, but the combination of Hormuz risks, Red Sea threats, and Chinese preference for alternative supplies has left its volumes to China at multi-year lows for now.