Chinese refiners pay record premiums for Russian crude as Iranian supply dries up

Chinese refiners are paying record premiums for Russia's East Siberia-Pacific Ocean crude blend as the loss of cheap Iranian barrels reshapes Asia's oil market. November-loading ESPO from Russia's Kozmino port is trading at more than $7 per barrel above Brent, with some offers to independent refiners reaching as high as $10, according to Bloomberg. The surge marks a stark reversal from the deep discounts China extracted on Russian crude for years after Western sanctions began in 2022.oilprice+1

Iranian Supply Vanishes, ESPO Fills the Gap

The immediate driver is the U.S. naval blockade on Iran, which Washington imposed earlier this year and has said it can maintain "indefinitely". The blockade has cut off the cheap Iranian crude that China's independent refiners in Shandong province — known as "teapots" — relied on to sustain thin margins. With those barrels gone, refiners have turned to ESPO, Russia's lightest and closest alternative, which reaches Chinese ports in less than a week from Kozmino.cnbc+3

Sinopec China Petroleum & Chemical Corporation, the world's largest refiner, has accelerated the shift. Reuters reported on September 2 that the state-owned company is extending its Russian oil buying spree into October, locking in volumes of ESPO along with smaller quantities of Sokol and Urals grades. Vortexa Analytics estimated Sinopec's August imports of Far Eastern Russian oil at just over 400,000 barrels per day. That buying has squeezed smaller refiners, which now face both scarce Iranian supply and intensified competition for Russian barrels.hydrocarbonprocessing+2

Shifting Market Shares

China remains the dominant buyer of ESPO crude, accounting for 83% of purchases in the first seven months of 2026, though that share has slipped from 88% a year earlier. India has picked up the slack, raising its share from 12% to 16% over the same period, according to data from Kpler and Vortexa. Total exports from Kozmino rose 6% year-on-year.energynewsbeat+1

The End of Discount-Era Oil

The premium signals a broader structural change. For most of the past four years, China leveraged its position as the buyer of last resort for sanctioned producers to extract discounts of $8 to $20 per barrel on Russian, Iranian, and Venezuelan crude. That era is closing. Venezuelan oil has moved onto the open market under U.S. oversight, with American refiners now the top buyers. Iranian barrels remain blocked. And ESPO, which traded at record discounts as recently as late 2025, has flipped to a premium as Chinese state refiners and teapots compete for scarce prompt supply.energynewsbeat

For China's independent refiners, the math is unforgiving: the bargain crude that kept them running is gone, and what remains costs more than ever.