Russian oil sales to China are being hit by a powerful double whammy: escalating Western sanctions and a domestic shortage of import quotas. Chinese “teapot” refiners, the small private players, are not only fearful of sanctions but are also running up against a lack of official quotas needed to import crude.
The sanction fear is acute. The blacklisting of Shandong Yulong Petrochemical Co. by the UK and EU has spooked the entire private sector. These teapots are now refraining from actions that could trigger similar penalties, effectively halting many Russian oil purchases.
This mirrors the actions of the state-owned giants. Sinopec and PetroChina are also on the sidelines, having canceled Russian cargoes following US sanctions on Rosneft and Lukoil. This widespread “buyers’ strike” has caused prices for Russia’s ESPO crude to plunge.
The scale of the disruption is massive. Rystad Energy AS estimates that 400,000 barrels a day of trade are affected, which could be as much as 45% of China’s total imports from Russia. This is a significant blow to Moscow, which had come to rely on China as its primary customer after the Ukraine invasion.
The US and its allies are actively trying to choke off these revenues. As China, the world’s top importer, steps back, other suppliers like the US may benefit. But the quota shortage for teapots means their ability to buy any crude, including Russian, is likely to be impeded for the rest of the year.