A new, more aggressive US sanctions strategy appears to be working, successfully spooking Russia’s single biggest oil customer: China. Chinese refiners, including state-run giants Sinopec and PetroChina, are canceling Russian crude shipments after the US blacklisted producers Rosneft and Lukoil last month.
The strategy of targeting both producers and their customers is sowing fear. The UK and EU blacklisting of Chinese refiner Shandong Yulong Petrochemical Co. has been particularly effective. It has prompted other private “teapot” refiners to halt their own Russian purchases, fearing they too will be penalized.
The results are stark. Russia, which had become China’s top supplier via heavily discounted oil, is now seeing that demand evaporate. Prices for its ESPO grade have plunged. Rystad Energy AS estimates the “buyers’ strike” affects 400,000 barrels a day, or as much as 45% of China’s Russian oil imports.
This escalation is part of a concerted effort by the US and its allies to choke off Moscow’s oil revenues, which are crucial to sustaining its war in Ukraine. By making it risky for Chinese firms to buy Russian oil, the West is forcing a realignment of global energy trade.
As the world’s biggest crude importer, China will now have to look elsewhere. This could benefit other suppliers, potentially including the US, especially after last week’s trade truce between Donald Trump and Xi Jinping. The recent summit, however, failed to clarify rules around Russian oil, adding to the market’s confusion.