Chinese refineries are cutting purchases of Russian ESPO crude oil—and this is no random market fluctuation. According to Reuters, the premium on ESPO over the Dubai benchmark has fallen to minimal levels in recent months: buyers are simply waiting for Moscow to agree to a lower price.
The same pattern is repeating with Iranian oil. China—effectively the only major market for both sanctioned exporters—is systematically using their isolation as a negotiating tool. When alternative buyers don't exist, it's enough to slow the pace of purchases for the seller to offer a discount on their own.
What's happening in the market
ESPO is a Pacific pipeline crude that goes almost exclusively to Chinese ports. Its premium over Dubai remained confidently above zero a year ago, indicating genuine competitive demand. Now, according to traders interviewed by Reuters, refineries in Shandong province—so-called "teapots," independent plants—have sharply reduced offers or withdrawn from negotiations entirely while waiting.
At the same time, Iranian oil, which reaches China under various "masked" origins, is also trading at increasingly deeper discounts. Both suppliers have found themselves in the same structural trap: sanctions have cut them off from dollar settlements and insurance, and therefore from most global buyers.
For Russia, this is more than just a trade concession
Russia's budget for 2024–2025 was drawn up based on anticipated oil revenue levels. Each additional discount is a direct reduction in federal treasury inflows, which finances the war. The IMF estimated Russia's critical budget break-even price at approximately $70 per barrel; the actual realized price for ESPO is already approaching this threshold when accounting for discounts and logistics costs.
Meanwhile, Moscow has no leverage in return: redirecting ESPO pipeline flows to other markets is physically impossible without years of infrastructure restructuring.
Beijing is playing a long game
China officially does not acknowledge that it coordinates the behavior of its refineries. But Shandong's "teapots"—sufficiently dependent on state infrastructure and the regulatory environment—make their synchronized behavior look like anything but pure market coincidence.
Beijing gets cheap raw materials, maintains formal neutrality, and simultaneously deepens Moscow's economic dependence. This is not an alliance of equals—it is an asymmetry that becomes deeper with each quarter.
If Russia is truly forced to sell oil below its budget break-even point, the question is not whether the Kremlin will withstand this pressure—but how much time will pass before it affects military financing.
