US Sanctions on Russian Oil Giants Send Shockwaves Across China
(Bloomberg) — US sanctions on Russia’s energy giants are sending shockwaves through the heart of China’s oil industry, where both state and private refiners face increasing pressure to maintain supply while avoiding penalties.
Close to 20 percent of China’s crude imports (about 2 million barrels per day in the first nine months of this year) come from Russia, making Russia one of the country’s leading sources of oil that is converted into products such as diesel, gasoline and plastics.
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The Trump administration’s blacklisting of Rosneft PJSC and Lukoil PJSC is the latest in a series of measures by the United States, the European Union and Britain targeting buyers of Russian crude oil and their contribution to Moscow’s coffers and the war effort in Ukraine. According to the US government, transactions involving the two companies must be closed by November 21.
For Russia’s biggest customers, China and India, the risk lies in their dealings with sanctioned entities, which could subject the companies to crippling secondary penalties. These include breaking away from western banking systems and having access to the dollar cut off or frozen by western producers, traders, shippers and insurers that form the backbone of global commodity markets.
Traders say the role Western firms play as investors and operators in major oil-producing regions such as the Middle East and Africa is of particular concern. Chinese and Indian companies that choose to continue working with sanctioned companies face the risk of being kicked out or excluded from numerous projects.
If they choose to comply with the sanctions, they will lose access to deeply discounted oil supplies that help keep energy costs low for industry and consumers. Additionally, buyers outside China and India are also grappling with the impact on Lukoil, which is involved in Iraq’s Basra project and the Caspian Pipeline Consortium in Central Asia.
Last week, Britain’s Rosneft and Lukoil, as well as China’s Shandong Yulong Petrochemical Co. The fact that the company was blacklisted due to its imports from Russia had already made traders uneasy. Western companies have since become wary of supplying the privately owned refinery. Other recent U.S. sanctions have targeted major Chinese ports such as Rizhao and Dongjiakou, which are major conduits for both Russian and Iranian oil.
At the center of the huge trade between Russia and China are Rosneft and the state-owned China National Petroleum Corp. There is a long-term contract between; This contract involves the purchase of ESPO crude oil via pipelines to landlocked refineries in the northern Daqing region. Facilities here rely heavily on Russian raw materials, making them particularly vulnerable to any disruptions, traders say.
