New blacklists from the US and its allies have cast a deep chill over the booming oil trade between Russia and China. Chinese refiners, from state-owned giants to small private “teapots,” are freezing purchases and canceling cargoes, fearful of being targeted by secondary sanctions.
The chill began when the US sanctioned Russian producers Rosneft and Lukoil. It intensified when the UK and EU blacklisted a Chinese customer, Shandong Yulong Petrochemical Co. This move served as a direct warning, and it was heard: Sinopec, PetroChina, and numerous teapots are now staying on the sidelines.
The market reaction has been dramatic. With its biggest buyer disappearing, prices for Russia’s ESPO crude have plummeted. Consultancy Rystad Energy AS estimates the disruption affects 400,000 barrels a day, or as much as 45% of the oil China imports from Russia.
This development is a major blow to Russia, which had successfully pivoted its energy exports to Asia, with China as its top customer. The US and its allies are now ratcheting up pressure, aiming to cut off the oil revenues that finance Moscow’s war in Ukraine.
As China, the world’s biggest importer, looks for alternative supplies, other nations like the US could benefit. The situation is complicated by the fact that the blacklisted Yulong is now buying more Russian oil out of necessity, while other teapots are also facing a shortage of crude import quotas, limiting their options.