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China Bypasses Sanctions, Chooses Russia as Top Oil Supplier in 2023

In 2023, China overtook Saudi Arabia to claim the position of the leading crude oil supplier, with Russia emerging as its primary source. Despite facing Western sanctions, China, the world’s largest crude importer, defied restrictions and secured substantial quantities of discounted oil for its processing facilities.

Chinese customs data revealed that Russia set a new record by delivering 107.02 million metric tons of crude oil to China, equivalent to 2.14 million barrels per day (bpd). This surpassed the contributions from other major exporters like Saudi Arabia and Iraq. Notably, imports from Saudi Arabia, once the predominant supplier, dropped by 1.8% to 85.96 million tons as China increasingly favored the more cost-effective Russian crude.

Following Western sanctions stemming from Russia’s 2022 invasion of Ukraine, Russian crude oil consistently traded at significant discounts compared to international benchmarks. The heightened demand from Chinese and Indian refiners for these discounted supplies boosted the price of Russian ESPO (East-Siberia-Pacific Ocean pipeline) crude throughout 2023, surpassing the $ 60-a-barrel cap the Group of Seven imposed in December 2022. This surge in demand also led to altered pricing dynamics, with December ESPO crude shipments being offered at a discount of approximately 50 to 20 cents per barrel to the ICE Brent benchmark.

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Simultaneously, Saudi Arabia increased prices for its signature Arab Light in July, prompting some refiners to seek more economical alternatives. To stabilize prices, both Saudi Arabia and Russia, among the world’s top three oil producers, announced output and export cuts. Saudi Arabia reduced output by around 1 million bpd in the current quarter, while Russia pledged to deepen its cut in exports to 500,000 bpd from the initial 300,000 bpd.

In navigating around Western sanctions, Chinese refiners employed intermediary traders to handle the shipping and insurance of Russian crude. Moreover, buyers utilized the waters off Malaysia as a trans-shipment point for sanctioned cargoes from Iran and Venezuela, resulting in a 53.7% increase in imports labeled as originating from Malaysia.

Despite geopolitical tensions between Beijing and Washington, crude oil shipments from the U.S. to China surged by 81.1% in 2023, reflecting an increase in U.S. crude production.

Overall, China’s crude oil imports for 2023 reached a historic high of 563.99 million metric tons, equivalent to 11.28 million bpd.

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