The risk of Western sanctions has officially begun to outweigh the reward of discounted Russian crude for Chinese refiners. A massive pullback is underway, led by state-owned giants Sinopec and PetroChina, who are canceling Russian cargoes.
This new risk calculation follows US sanctions on Russian producers Rosneft and Lukoil. It was solidified by the UK/EU blacklisting of a Chinese refiner, Shandong Yulong Petrochemical Co., which has terrified the smaller “teapot” refiners.
This “buyers’ strike” has tanked prices for Russian ESPO crude and put 400,000 barrels a day of trade in jeopardy, according to Rystad Energy AS. This volume represents nearly half of China’s imports from Russia, which had been its top supplier.
Russia’s post-Ukraine strategy of funding its war with discounted oil sales to Asia is now under severe pressure. The US and its allies are successfully escalating their campaign to cut off Moscow’s revenues by targeting its customers.
As China, the world’s top importer, steps back, a gap opens for other suppliers. The US, following a trade truce with Beijing, could benefit. However, the situation is muddled by a shortage of import quotas for teapots, adding another layer of complexity.