Global oil prices have skyrocketed this week as Western sanctions against Russia have taken hold, with benchmark Brent crude prices breaking through $113 a barrel, its highest level since June 2014. Vessels carrying Russian commodities have been barred in the UK, while several European and US refiners halted purchases of Russian oil this week and Ukrainian Foreign Affairs Minister Dmytro Kuleba called for a full embargo on Russian oil and gas.
In addition, Russia’s ban from the SWIFT payment platform has made transactions with the nation incredibly difficult, leaving the country’s bank financing in disarray.
With Russia’s oil prices taking a significant hit, some are saying that Chinese buyers are likely to take advantage of the discounted oil and stockpile supplies, though conducting the transactions is increasingly difficult in light of the tightening sanctions.
In this climate, Chinese refiners are reportedly turning to alternative payment methods that bypass bank approval to maintain its supply of crude oil from Russia’s Far East Kozmino port. Specifically, buyers are using telegraphic transfer to send money to Russian companies upfront, increasing risk exposure for the Chinese refining companies.
Russia currently produces 10.5 million barrels per day of crude oil, making it the second-largest crude oil producer in the world, following the US. According to Reuters China imported 575,000 barrels of this oil last year, representing 6% of its total crude oil imports.
Despite China’s pledge to maintain ties with Russia in the face of increasing sanctions from the EU and US, at least two of its state-owned banks have restricted funding for purchases of Russian commodities, with US dollar-denominated letters of credit no longer being issued.
While sanctions against Russia have thus far been swift and severe, nations have been reluctant to target the energy market specifically given the importance of Russia as an oil and gas producer. Efforts to decrease reliance on Russia for these imports are now, however, underway, with the IEA approving the release of 60 million barrels of oil from emergency stockpiles and yesterday releasing a 10-point plan to curb reliance on Russian supplies by a third.