A palpable fear of penalties has gripped China’s private “teapot” refiners, leading them to shun Russian oil. Their anxiety stems from the recent blacklisting of Shandong Yulong Petrochemical Co. by the UK and European Union, which has been interpreted as a clear warning.
These smaller refiners are not alone. State-owned giants Sinopec and PetroChina Co. are also steering clear, canceling Russian cargoes. This broader retreat follows new US sanctions on Moscow’s key producers, Rosneft PJSC and Lukoil PJSC, making the trade toxic by association.
This collective “buyers’ strike” has hit Russia hard, causing prices for its widely-favored ESPO crude to plunge. According to Rystad Energy AS, some 400,000 barrels a day are affected. This represents a massive 45% of China’s total oil imports from Russia, which had been its top supplier.
Russia earned that spot by offering deep discounts post-Ukraine invasion. Now, the US and its allies are ratcheting up pressure to close this loophole, aiming to cut off Moscow’s oil revenues and hamper its war effort.
For the teapots, the fear of sanctions is compounded by a domestic problem: a shortage of crude import quotas. This is likely to impede their purchases of Russian oil for the rest of the year, even for those who might have been willing to take the risk.