US Tightens Sanctions on Russian Oil, Creating Dilemmas for China and India
Recent actions by the US government are increasing pressure on Russia‘s oil industry, and posing challenges for key buyers like China and India. The Trump administration has added Russian oil giants Rosneft PJSC and Lukoil PJSC to its sanctions list, the latest in a series of measures implemented by the US, the European Union, and the UK aimed at curtailing revenue flowing to Moscow and limiting its ability to fund its war efforts in Ukraine.
These new sanctions require all transactions involving Rosneft and Lukoil to be concluded by November 21st. The risk for countries heavily reliant on Russian oil, particularly China and India – Russia’s largest customers - lies in potential “secondary penalties” for continuing to do business with sanctioned entities. These penalties could include exclusion from western banking systems, loss of access to US dollars, and being shut out of global commodities markets by western producers, traders, shippers, and insurers.
Currently, approximately 20% of China’s crude oil imports – roughly 2 million barrels per day during the first nine months of the year – originate from Russia. This makes Russia a leading oil supplier for china, with the crude being processed into products like diesel, gasoline, and plastics.
The situation is complicated by the critically important role western firms play as investors and operators in major oil-producing regions like the Middle East and Africa. Companies in China and India that continue to work with sanctioned Russian firms risk being excluded from participation in these broader projects.
Conversely, complying with the sanctions means losing access to the discounted Russian oil that has helped to keep energy costs down for both industry and consumers. The impact extends beyond China and india, as Lukoil’s involvement in projects like Iraq’s basrah project and the Caspian Pipeline Consortium in Central Asia is also affected.
Recent actions by the UK,including blacklisting Rosneft,Lukoil,and China’s Shandong Yulong Petrochemical Co. (due to its Russian imports), have already increased caution among western companies, particularly regarding supplying the privately-owned shandong Yulong Petrochemical refinery. The US has also targeted major Chinese ports, including Rizhao and Dongjiakou, which are key entry points for both Russian and Iranian oil.
A significant component of the Russia-China oil trade is a long-term contract between Rosneft and China National Petroleum Corp. (CNPC) for the purchase of ESPO crude via pipelines to refineries in the Daqing region. These refineries are heavily reliant on Russian feedstock, making them particularly vulnerable to disruptions. While the impact on these pipeline flows – approximately 800,000 barrels per day - remains unclear due to the government-to-government nature of the agreement, CNPC has not yet responded to requests for comment.
Data from analytics firm Kpler indicates that Rosneft and Lukoil collectively supplied about one quarter of Russia’s oil exports to China last year, and also export ESPO crude from Russia’s eastern port of Kozmino to private refiners in Shandong province and along the Chinese coast.
