Chinese and Indian refiners are actively seeking alternative crude oil supplies as new US sanctions on Russian producers and tankers disrupt the flow of shipments to Moscow’s key customers.
The sanctions, announced by the US Treasury on Friday, target major Russian oil producers Gazprom Neft and Surgutneftegas, along with 183 vessels that have been instrumental in transporting Russian oil.
These measures are part of a broader effort to curtail the revenue streams that Moscow has relied upon to fund its ongoing conflict with Ukraine. The sanctions have significantly impacted trade patterns, forcing refiners in China and India—key buyers of Russian crude—to turn to other suppliers in the Middle East, Africa, and Latin America.
Since Western sanctions and a Group of Seven-imposed price cap in 2022 shifted Russian oil sales from Europe to Asia, India and China have become primary destinations for Russian crude. However, the latest sanctions have complicated this trade, disrupting shipments and pushing refiners toward non-sanctioned oil sources.
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In response, spot premiums for crude from regions like the Middle East, Africa, and Brazil have risen sharply. On Monday, global Brent crude futures surged above $81 per barrel, reaching their highest levels since August.
Over the weekend, China’s Yulong Petrochemical—a new player in the refining industry—secured 4 million barrels of Abu Dhabi’s Upper Zakum crude for its refinery in Yantai, Shandong Province.
This 400,000-barrel-per-day facility, which began trial operations in September, has been diversifying its crude sources, purchasing Angolan and Brazilian oil in recent weeks.
The company, which previously relied on Russian ESPO Blend crude, is now exploring deals for oil from West Africa and Canada. Recent purchases include Angolan Girassol and Nemba crude, as well as Brazilian Buzios and Tupi crude.
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China has also reiterated its opposition to unilateral US sanctions, emphasizing the need for a balanced and fair global trade environment.
Indian refiners, meanwhile, are also adjusting to the new reality. Bharat Petroleum Corporation Limited (BPCL) recently purchased 2 million barrels of Oman crude for February loading from Totsa, the trading arm of TotalEnergies. Other Indian refiners are actively seeking additional supplies, with spot demand continuing to rise.
Totsa, which has accumulated significant volumes of Middle Eastern crude over recent months, has benefited from the growing demand. The company has successfully sold off excess supplies, further boosting spot premiums for regional benchmark grades.
The sanctions have not only tightened crude supplies but also complicated shipping logistics. Vessels owned or managed by companies linked to sanctioned entities face increased scrutiny, potentially creating delays and operational challenges.
Additionally, traders predict a rise in middlemen marketing oil from sanctioned producers such as Gazprom Neft and Surgutneftegas. Payment mechanisms are also evolving, with more transactions being conducted in Chinese yuan through China’s Cross-border Interbank Payment System (CIPS).
Among the sanctioned entities are two Chinese oil logistics firms—Shandong United Energy Pipeline Transportation Co. Ltd. and Guangrao Lianhe Energy Pipeline Conveyor Co. Both companies primarily transport oil within China, relying on yuan-denominated payments. As a result, the sanctions are unlikely to significantly impact their operations.
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