Key Points
- The U.S. has sanctioned two of Russia’s largest energy companies, Rosneft and Lukoil.
- The move is putting immense pressure on China, a major buyer of Russian oil.
- Chinese refiners must now choose between cheap Russian oil and the risk of crippling U.S. sanctions.
- Russia supplies up to 20% of China’s crude oil imports. The sanctions threaten to disrupt a major and highly profitable energy trade.
New U.S. sanctions on Russia’s biggest energy companies are sending shockwaves through China’s oil industry, forcing refiners to make a difficult choice: keep buying cheap Russian crude and risk crippling U.S. penalties, or comply with the sanctions and lose access to a vital and discounted source of energy.
The Trump administration has blacklisted Rosneft and Lukoil, two of Russia’s energy giants, in its latest move to punish Moscow for the war in Ukraine. The U.S. has given companies until November 21 to wind down their business with the two firms.
This is a huge problem for China. Russia is one of its top oil suppliers, accounting for as much as 20% of its crude imports. The deeply discounted Russian oil has been a lifeline for Chinese refiners, helping them to keep energy costs low for both industry and consumers.
Now, those refiners are in a bind. If they continue to deal with the sanctioned Russian companies, they could be hit with “secondary sanctions” from the U.S. This could mean being cut off from the Western banking system, access to U.S. dollars, and the global network of traders and insurers that underpins the oil market.
China has pushed back against the U.S. move, but it’s unclear what its refiners will do. Some are so heavily reliant on Russian oil that any disruption could be devastating. For now, the sanctions have put the massive and profitable oil trade between Russia and China in a very precarious position.
