The blacklisting of a single Chinese refiner has sent a chill through the country’s entire oil industry, causing a dramatic pullback from Russian crude. The UK and EU sanctions on Shandong Yulong Petrochemical Co. are being treated as a cautionary tale, especially by the smaller “teapot” refiners who fear a similar fate.
This “Yulong effect” is compounding the caution already being shown by state-owned giants. Sinopec and PetroChina Co. are also canceling Russian cargoes, wary of new US sanctions on Moscow’s top producers, Rosneft and Lukoil. The collective fear of secondary sanctions is proving to be a powerful deterrent.
The market impact has been swift. Russian ESPO crude, a favorite among Chinese buyers, has seen its price tumble. An estimated 400,000 barrels a day are now in limbo, according to Rystad Energy AS. This volume represents a significant chunk—up to 45%—of the oil China imports from Russia.
This is a major blow to Moscow, which had pivoted its sales to China at steep discounts after the Ukraine invasion. The US and its allies are now demonstrating that they will target not just Russian sellers but also their international buyers, as they escalate efforts to defund Russia’s war.
In a strange twist, the blacklisted Yulong has been forced to become more reliant on Russian oil, as Western suppliers have canceled their cargoes. Other teapots, however, are not only scared but also constrained by a shortage of import quotas, making a large-scale return to Russian oil unlikely for the remainder of the year.
The “Yulong Effect”: How One Blacklisting Spooked China’s Oil Market
