Moscow’s Oil Lifeline to China Sputters

Russia’s dominant position as China’s top oil supplier is under threat as new sanctions scare off its biggest customers. Chinese state-owned refiners, Sinopec and PetroChina Co., are canceling Russian shipments. This sudden caution is a reaction to US penalties imposed on Russian producers Rosneft and Lukoil last month.
The fear of being targeted has trickled down to the “teapot” refiners, the smaller private players in China’s oil market. They are watching the case of Shandong Yulong Petrochemical Co., which was blacklisted by the UK and EU. The desire to avoid a similar fate has caused them to hold off on new Russian purchases.
This collective pullback has caused prices for Russian crudes, like the popular ESPO grade, to plunge. The scale of the disruption is significant, with Rystad Energy AS estimating that 400,000 barrels a day are affected. This volume represents a staggering 45% of China’s oil imports from Russia.
Russia had previously cemented its role as China’s main supplier by offering heavily discounted oil after Western nations penalized Moscow for the Ukraine invasion. Now, those same Western allies are ratcheting up the pressure, targeting Russia’s customers to dry up its revenue stream and impede its war effort.
Ironically, the blacklisted Yulong has become a captive customer, turning heavily to Russian oil after being cut off by Western suppliers. However, other teapots are hesitant, and their purchasing power is already limited by a shortage of crude import quotas. This dual challenge of sanctions and quotas is set to dampen Chinese demand for Russian oil for the foreseeable future.