In a bold defiance of Western sanctions, China cemented its position as the top destination for Russian oil in 2023, solidifying its economic ties with Moscow and raising concerns about potential loopholes in the global financial system.
Data released on Saturday revealed that Russia shipped a record 107.02 million metric tons of crude oil to China last year, equivalent to a staggering 2.14 million barrels per day. This surge propelled Russia past long-time leader Saudi Arabia, highlighting China’s willingness to capitalize on discounted Russian oil amid the ongoing war in Ukraine.
Shunned by many Western buyers due to sanctions imposed after the Kremlin invaded Ukraine, Russia offered its oil at significant discounts throughout 2023. This proved irresistible to Chinese and Indian refiners, who snapped up the oil, boosting the price of Russian ESPO crude and surpassing the G7’s $60-per-barrel price cap imposed in December 2022.
Analysts note clever tactics employed by Russia to circumvent sanctions. Alternative shipping and insurance options have emerged, often involving intermediary traders and utilizing ports like those in Malaysia as trans-shipment points for sanctioned cargoes from Iran and Venezuela. Notably, shipments tagged as originating from Malaysia spiked 53.7% last year, raising concerns about the potential masking of sanctioned oil.
With China turning to Russia for cheaper oil, Saudi Arabia, previously China’s top supplier, saw its market share shrink. Despite raising prices for its signature Arab Light crude from July, the Saudi giant lost ground to Moscow’s discounted offerings. To counter this trend, both Saudi Arabia and Russia, two of the world’s top oil producers, announced output and export cuts throughout 2023, aiming to balance the market and support prices.
China’s overall crude imports in 2023 reached a record high of 563.99 million metric tons (11.28 million bpd). Notably, shipments from the U.S. surged 81.1%, despite the ongoing geopolitical tensions between Beijing and Washington, reflecting America’s increased crude production.
The International Energy Agency (IEA) recently reported that global oil demand is expected to rise in 2024, potentially benefiting both Russia and China. However, the agency also expressed concerns about the impact of slowing economic growth in major economies on oil demand, adding uncertainty to the future trajectory of crude oil markets.
Recent U.S. sanctions targeting Russian oil tankers and related financial services aim to further tighten the noose on Russian oil exports. The war in Ukraine continues to cast a long shadow on the global oil market, with potential risks of escalation and disruption to supply chains. This geopolitical uncertainty adds another layer of complexity to the already volatile oil market.
China’s decision to embrace Russian oil at a time of Western sanctions raises concerns about the effectiveness of those sanctions and the potential for China to exploit loopholes in the global financial system.