Russia is ramping up its Arctic oil exports to China this month, offering significant discounts and utilizing tankers not targeted by U.S. sanctions to sidestep recent trade restrictions, according to data from analytics firm Vortexa and insights from two Russian oil traders. Russian producers Lukoil and Gazprom Neft did not immediately respond to Reuters’ inquiries regarding the shipments.
Roughly 10% of Russia’s seaborne crude exports stem from its Arctic oil trade, which faced disruption following the U.S. sanctions imposed in January. The sanctions targeted almost all vessels transporting key Arctic grades such as ARCO, Novy Port, and Varandey, along with state-run producer Gazprom Neft.
To navigate around these restrictions, traders have been using ship-to-ship (STS) transfers in international waters near Singapore and Malaysia. Once the oil is loaded onto Very Large Crude Carriers (VLCCs) that aren’t subject to sanctions, the cargoes continue their journey to China, Vortexa senior analyst Emma Li and traders explained.
Li noted that at least 4 million barrels of Arctic crude were transferred via STS last week alone, and another 16 million barrels are expected to arrive or are already positioned in the South China Sea throughout April. While China’s appetite for Arctic oil appears to be on the rebound due to the available supply, the actual volume offloaded will depend on both the logistical flow and the purchasing decisions of Chinese refiners, Li added.
According to Vortexa, China imported around 25,000 barrels per day of Arctic crude in March. One trader highlighted that these ship-to-ship operations are essential, as many Chinese refiners prefer cargoes delivered on vessels free from sanctions to avoid complications or the risk of secondary sanctions, and some are even prepared to pay a premium for such cargoes.
For instance, data from Kpler shows that the non-sanctioned VLCC Atila took on approximately 2.07 million barrels of ARCO crude from two sanctioned ships in March near Singapore. The oil was later discharged at Dongying port in China’s Shandong province earlier this month. Notably, the Atila had previously conducted similar STS operations involving Iranian crude.
Arctic oil grades are extracted from Russia’s remote northern regions, where severe weather conditions and logistical challenges require massive investments for development. Light Varandey crude is produced by Lukoil, while Gazprom Neft handles light Novy Port and heavier ARCO grades.
Currently, the journey from Russia to China takes about two months, as the cargoes are routed via the Suez Canal. The added leg of STS transfers drives up transportation costs, traders said. The alternative — the shorter North Sea Route (NSR) — remains closed until July.
Arctic crude, once sold at a premium over Brent, is now being offered at a discount, traders reported.
India, once the leading buyer of Arctic crude, has scaled back imports due to the sanctions. Most of the Arctic oil destined for India, mainly Varandey, supplied by Litasco, has faced disruptions. Indian authorities also recently blocked a ship from transferring Russian oil to another vessel at sea.
Other destinations for Russian Arctic oil include Syria, which began receiving shipments earlier this year, and Myanmar.
