Russia’s Arctic oil shipments to China are expected to surge in April as traders offer steep discounts and utilize non-sanctioned tankers to bypass U.S. sanctions, according to oil analytics firm Vortexa and two Russian oil traders.
The Arctic oil trade, which accounts for roughly 10% of Russia’s seaborne crude exports, has been heavily impacted by U.S. sanctions introduced in January. These measures target nearly all tankers transporting Russian Arctic grades such as ARCO, Novy Port, and Varandey, as well as key producer Gazprom Neft.
To circumvent the restrictions, Russian exporters have turned to ship-to-ship (STS) transfers in international waters near Singapore and Malaysia. The oil is transferred from sanctioned vessels to non-sanctioned Very Large Crude Carriers (VLCCs) before continuing to China, according to traders and Vortexa senior analyst Emma Li.
Li reported that at least 4 million barrels of Arctic oil underwent STS transfers last week, with another 16 million barrels having either arrived or en route to the South China Sea this month. She noted that while China’s Arctic oil imports are poised to rebound due to this increased supply, actual discharge volumes will depend on logistical challenges and demand from Chinese refiners.
In March, China imported an average of 25,000 barrels per day of Arctic oil, Vortexa data showed.
Chinese buyers are prioritizing cargoes transported on non-sanctioned tankers to avoid the risk of secondary sanctions and are willing to pay a premium for such shipments, one trader said.
As an example, the non-sanctioned VLCC Atila loaded 2.07 million barrels of ARCO oil from two sanctioned vessels in Singapore waters in March. The cargo was delivered in April to Dongying port in China’s Shandong province, according to shipping data provider Kpler. Atila has previously been used for STS operations involving Iranian oil.
Russia’s Arctic oil grades originate from the country’s harsh northern regions, where production and transport require significant investment. Light Varandey oil is produced by Lukoil, while Gazprom Neft supplies the light Novy Port and heavy ARCO grades. Both companies declined to comment.
With the Northern Sea Route (NSR) closed until July, tankers are currently taking the longer path via the Suez Canal. This journey, combined with the STS transfers, extends delivery times to about two months and significantly increases costs.
“It’s a very long and expensive route,” one trader remarked. “The only idea is to evacuate barrels.”
Previously commanding a premium, Russian Arctic grades are now being sold at discounts to Brent crude, the traders said. India, once a leading buyer, has cut back purchases due to sanctions. Most of the Arctic oil destined for India comes from Litasco-supplied Varandey.
This month, Indian authorities blocked a tanker from transferring Russian oil to another vessel at sea. Other buyers of Arctic oil include Syria, which received its first shipment earlier this year, and Myanmar.
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