Chinese refiners, particularly independent "teapots" in Shandong, are ramping up purchases of sanctioned Russian crude, despite shrinking discounts, in response to increased disruptions to Middle Eastern oil exportscaused by an escalation of the Iran war and threats from Yemen's Houthis. This comes as China's dependence on Russian crude reached a record 23.6% in the first half of 2026.
Two major Chinese refiners bought most of the Russian ESPO Blend crude loading from the Pacific port of Kozmino for September. These cargoes were sold at a discount of $1 to $3 per barrel to ICE Brent, a narrower discount compared to the August-loading ESPO which saw discounts of around $4 per barrel. The higher prices for Russian crude are attributed to strong demand from India, another significant buyer. Traders indicate that ESPO is considered a "safer bet" and still cheaper amidst Middle Eastern uncertainty.
In addition to Russian oil, Chinese refiners have resumed talks to buy Iranian oil. Iranian Pars crude, a heavy grade, was sold at a discount of about $8 a barrel to ICE Brent for delivery to Shandong, widening from an earlier offer of about $6. Iranian Light crude offers also saw discounts of about $3 to $4 per barrel, compared with about $3 last week. However, teapots are not rushing to buy crude as refining margins have worsened with Brent surging to nearly $100 a barrel.
Separately, some Chinese independent refiners who had previously bought approximately 20 million barrels of Middle Eastern crude for July and August loading are now looking to resell this oil for profit. These cargoes were reportedly offered to end-users in nearby countries like Taiwan and South Korea at premiums of $6 to $9 per barrel to the Dubai benchmark on a delivered basis. This move allows them to capitalize on surging prices and replace the Middle Eastern barrels with cheaper Russian crude like ESPO, making the transaction profitable.
