China is a long-standing buyer of Russian crude, and Beijing is a strategic partner and neighbor. Its local importers are no strangers to working with sanctioned regimes and counterparties, procuring crude from Iran and Venezuela during the most crippling curbs by using clandestine activities.
“China is likely to continue buying Russian crude both for its operational needs and for restocking,” said Michal Meidan, director of the China Energy Research Programme at Oxford Institute for Energy Studies. Crude inventories across the country hit a two-year low in January, data from Ursa Space Systems show.
Local buyers may reenter the spot market for seaborne cargoes after a brief pause, while flows of ESPO crude via inland pipelines are likely to continue unfettered, traders said. For any transactions, buyers could use open-credit transactions — tapping existing lines of credit — or use yuan, they said.
“Even if it’s sanctioned, it can settle oil in yuan or rubles and, as we have seen with Iran and Venezuela, some buyers that do not have international exposure can work around sanctions,” said Meidan.
The potential opportunistic buying by China stands in contrast to U.S. and European companies reassessing their ties to Russia as the backlash to the invasion grows. Supermajor BP Plc has decided to quit its stake in Rosneft PJSC, Shell Plc’s is exiting from a stake in a major gas project, and Norway’s Equinor ASA said it will start exiting joint ventures in the country.
Banks have acted too including, for now, some in China. Societe Generale SA and Credit Suisse Group AG have halted the finance of commodities trading from Russia, while Singapore’s biggest lenders are restricting trade financing. At least two of China’s largest state-owned banks have also curbed funding for purchases of Russian raw materials in dollars.
Still, some Chinese banks may continue to carefully assess the potential risks of handling Russian transactions as the size of their exposure outside of China far outweighs the significance of that business.
Russia was China’s third-largest supplier of seaborne crude in January after Saudi Arabia and Iraq, according to data compiled by Bloomberg. Imports averaged 811,000 barrels a day that month, with cargoes coming from Russia’s Fast East as well as the nation’s Urals region in the west.
For seaborne exports of ESPO crude oil — a grade pumped from Russia’s Far East — western majors and international trading houses are assessing the complications of taking cargoes sold by companies such as Surgutneftegas PJSC and Rosneft. Should shipments be affected, Chinese buyers may be among the first to consider these distressed cargoes, traders said.
Such moves may follow a playbook seen in 2021, when Chinese buyers gorged on cheap oil from Iran and Venezuela, taking the most from the U.S.-sanctioned regimes in three years. Observed imports were 324 million barrels that year, a rise of 53%, according to data and analytics firm Kpler.