Chinese refiners are being offered Russian ESPO crude at discounted prices as rising concerns over U.S. sanctions create logistical and administrative challenges, deterring buyers, Bloomberg reported on Feb. 11.
In one of his final moves in office, U.S. President Joe Biden imposed sanctions on Russia on Jan. 10, targeting Gazprom Neft, Surgutneftegaz, over 180 oil tankers transporting crude from Russia, Iran, and Venezuela, and insurance companies involved in oil logistics.
Following the sanctions and rising oil prices, China temporarily halted purchases of Russian crude, despite being one of Russia’s largest oil buyers in 2024.
With the new U.S. sanctions in place, the cost of delivering Russian oil to China surged fivefold, from $1.5 million in early January to $7 million by the end of the month. This spike increased fuel and freight costs for Chinese buyers, prompting them to seek alternative suppliers in the Middle East, Africa, and the Americas, Bloomberg reported.
ESPO is a higher-quality Russian crude than Urals and is typically in high demand in Asian markets, where it usually trades at a premium, according to Bloomberg.
Supplies of ESPO crude from the Far Eastern port of Kozmino, transported on non-sanctioned tankers and loaded in March, are selling at a $2–$3 per barrel premium to Brent. In January, the premium for shipments under the same conditions exceeded $5.
Oil delivered on sanctioned tankers is being offered at an even steeper discount. However, China’s state-owned refiners have so far refused to sign ESPO supply contracts for February as they weigh the risks and potential consequences.
Some buyers and sellers are considering using lesser-known oil terminals or unloading shipments outside Shandong province before transferring them to another tanker to keep ESPO trading. However, traders told Bloomberg this would reduce government oversight while driving up costs that most refineries cannot afford.
China has strengthened economic ties with Russia since the start of Moscow’s full-scale invasion of Ukraine, though Beijing has denied accusations of directly supporting Russia’s military efforts.
Russia’s fossil fuel industry remains the primary economic driver of Moscow’s full-scale war against Ukraine.
Mounting economic pressure has nonetheless forced many Chinese financial institutions to scale back their dealings with Russia, fearing secondary sanctions.
Karol Luczka
(Updated: )
