Provided is a conversion process for an inferior oil, relating to the field of biomass utilization, energy and chemical industry. The conversion process is carried out in presence of a catalyst selected from the group consisting of an iron oxide compound, a desulfurization waste agent resulting from use of an iron oxide compound as desulfurizer, and a regeneration product of the desulfurization waste agent, under a controlled molar ratio of iron element to sulfur element. It is found that free radical condensation polymerization of inferior oil during cracking process can be blocked effectively by using carbonylation, and hydrogenation is achieved with active hydrogen produced from the conversion of CO and water. In the conversion process, inferior oil can be, directly converted, thereby increasing liquefaction yield and calorific value of the obtained oils. No large amount of waste water is generated after completion of the conversion.