The UK and EU blacklisting of Shandong Yulong Petrochemical Co. has sent a chilling effect through China’s “teapot” refining sector. These smaller, private refiners are now refraining from actions that could trigger similar sanctions, leading to a sharp drop in Russian oil purchases.
This fear in the private sector is amplifying the caution shown by state-owned giants. Sinopec and PetroChina are also on the sidelines, canceling Russian cargoes. Their avoidance is linked to new US sanctions on Russia’s top producers, Rosneft and Lukoil.
The collective pullback has been devastating for Russian crude prices. The ESPO grade, a favorite of Chinese buyers, has seen its value plunge as demand evaporates. Rystad Energy AS estimates the “buyers’ strike” has removed 400,000 barrels a day from the market, or up to 45% of China’s Russian imports.
This is a major blow to Russia, which had successfully made China its top customer by offering steep discounts after the Ukraine war. The US and its allies are now systematically targeting this trade to cut off Moscow’s war funding.
The situation for teapots is doubly difficult. Besides the fear of sanctions, they are also running low on import quotas for crude oil. This domestic issue will likely impede their purchases of Russian oil for the rest of the year, regardless of the sanction risk.