The new Western sanctions on Russian oil have created a paradoxical situation in China, exemplified by the case of Shandong Yulong Petrochemical Co. After being blacklisted by the UK and EU, Yulong has seen its Western suppliers cancel cargoes, forcing it to turn heavily to Russian oil as one of its only remaining options.
This makes Yulong an exception. Most other Chinese refiners are fleeing Russian crude in panic. The blacklisting of Yulong has served as a potent warning to other private “teapot” refiners, who are now holding off on purchases to avoid a similar fate.
Even state-owned behemoths like Sinopec and PetroChina Co. are shunning Russian oil. Their retreat follows new US sanctions on Russian producers Rosneft and Lukoil. The fear of being entangled in secondary sanctions has proven powerful enough to override the allure of discounted crude.
This collective “buyers’ strike” has hit Moscow hard. Prices for its ESPO crude have plummeted as demand from its top customer, China, has dried up. Rystad Energy AS estimates that 400,000 barrels a day—potentially 45% of China’s Russian imports—are affected by the pullback.
This development serves the goals of the US and its allies, who are trying to cut off Russia’s war funding. For China’s teapots, the decision is further complicated by a shortage of import quotas, which will limit their purchasing power for the rest of the year, regardless of their willingness to skirt sanctions.