A wave of fear is rippling through China’s “teapot” refiners, the small, independent companies that are a crucial part of the country’s oil market. These firms are halting purchases of Russian crude, terrified of attracting the same penalties that recently hit Shandong Yulong Petrochemical Co., which was blacklisted by the UK and EU.
This private-sector panic is happening alongside a strategic retreat by state-owned giants. Sinopec and PetroChina Co. are also canceling Russian shipments. Their move is a response to new US sanctions on Russia’s top producers, Rosneft and Lukoil, making the trade too risky to continue.
The collective pullback from China, Russia’s biggest customer, has had a severe impact. Prices for Russian crude grades like ESPO have plunged. Rystad Energy AS estimates that 400,000 barrels a day of oil trade are affected, a volume that represents nearly half of China’s imports from Russia.
Russia’s strategy of offering discounted oil to friendly nations after the Ukraine invasion is now facing its biggest test. The US and its allies are demonstrating their willingness to enforce sanctions by going after customers, a move designed to choke off Moscow’s oil revenues.
For the teapots, the problem is twofold. In addition to the fear of sanctions, they are also running low on government-issued import quotas. This domestic issue is likely to impede their purchases of any foreign crude, including Russian, for the remainder of the year.