(MENAFN- The Arabian Post)

China, the world's largest importer of oil, is feeling the pinch as expanded sanctions on key Chinese ports and refiners hinder the flow of Russian and Iranian crude. US sanctions targeting major producers such as Rosneft PJSC and Lukoil PJSC have caused a significant pause in the import of ESPO crude, which constitutes a major part of China's oil imports from Russia. This disruption is also intensified by the targeting of the Rizhao oil terminal, a crucial facility that accounted for approximately 10% of China's total crude imports, affecting Iranian oil shipments.

The broader sanctions regime has created a complex situation for China's energy security. As the country attempts to balance its relationship with Russia and Iran, its state-owned oil processors have halted purchases of ESPO, leaving a substantial gap in the market. ESPO is a vital source of crude due to its proximity to China, making it a cost-effective and reliable supply. With Rosneft and Lukoil, two of the largest players in the Russian oil industry, affected by the sanctions, China's access to ESPO has been severely restricted.

This disruption follows the US's broader strategy of targeting entities linked to Russia's invasion of Ukraine and its ties to Iran. The US sanctions are not only aimed at limiting Russia's oil revenue but also at curbing the flow of Iranian crude to global markets. Both Russian and Iranian oil supplies to China are integral to meeting the country's vast energy demands. However, these sanctions have made it more difficult for state-owned refiners to purchase and process this oil directly.

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Despite these challenges, China's oil import landscape is not entirely bleak. Emerging workarounds indicate that these disruptions may be temporary. Chinese traders have turned to alternative methods to bypass sanctions. For instance, the country is increasingly relying on oil products from third-party suppliers, acting as intermediaries to obscure the final destination of the oil. Such arrangements have become more common, with Chinese companies utilising complex networks of trading firms to circumvent direct purchasing restrictions.

There is evidence that Chinese firms are beginning to use more sophisticated financial mechanisms to sidestep the effects of sanctions. While major banks have been cautious about engaging in transactions involving sanctioned entities, smaller financial institutions are willing to take on the risk. This has led to a rise in unreported and non-traditional financial channels, further complicating efforts to track and control oil flows to China.

Chinese ports are adapting to the new reality by becoming more selective about the types of crude they import. The country is increasingly focused on securing alternative supplies from countries that are not directly affected by Western sanctions. For example, China has ramped up its imports of crude from Africa and Latin America, regions that remain largely unaffected by US sanctions. This diversification strategy is helping to mitigate the impact of sanctions on Russian and Iranian oil.

The shift in China's oil import strategy also has broader implications for global oil markets. As China continues to secure oil through workarounds, it may further cement its position as a leading player in shaping global energy flows. Meanwhile, the US sanctions are pushing Russia and Iran to seek out new customers and markets, particularly in emerging economies. This could lead to an increase in oil trade between Russia, Iran, and other nations not aligned with the West.

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