Sanctioned Russian Arctic Oil Floods China via Shadowy Ship-to-Ship Transfers

Russia is turbocharging Arctic oil shipments to China through risky ship-to-ship (STS) transfers in international waters, circumventing U.S. sanctions that have crippled its traditional export routes. But the workaround comes at a steep price—logistical chaos, inflated costs, and uncertain demand from Chinese buyers.

Sanctions Spark Shadow Tanker Games

• U.S. sanctions imposed in January targeted nearly all tankers carrying Russian Arctic grades like ARCO and Novy Port, squeezing Gazprom Neft’s exports.
• Traders now transfer cargoes at sea off Singapore and Malaysia onto non-sanctioned VLCCs before delivery to China.
• At least 20 million barrels of Arctic oil are involved in STS ops this month, per Vortexa’s Emma Li—including 4 million barrels moved last week alone.

“Chinese refiners want these barrels but won’t touch sanctioned tankers. STS lets them bypass the risk—for now,” a trader told Reuters.

Why China? India Retreats, Syria Steps In

• China’s March imports of Arctic oil averaged 25,000 bpd, with volumes set to rise sharply.
• India, once the top buyer, has slashed purchases due to sanctions. Remaining flows (mostly Lukoil’s Varandey grade) face heightened scrutiny—Mumbai recently blocked an STS operation.
• Syria and Myanmar have emerged as secondary buyers, with Syria receiving its first shipments this year.

The Costly Arctic Detour

• Two-month voyages: Tankers now sail via the Suez Canal (the shorter Northern Sea Route is closed until July).
• Storage limbo: Some cargoes, like the Fast Kathy, sit idle for weeks (e.g., floating off Egypt since April 9).
• Discounts widen: Arctic light crude now trades below Brent after previously commanding premiums.

The Fragility of the Workaround

• STS premiums: Chinese buyers pay extra for “clean” VLCCs—like the Atila, which previously hauled Iranian oil.
• Logistics hurdles: “It’s a long, expensive route just to evacuate barrels,” admitted a trader.
• Storage glut: Not all transferred oil finds immediate buyers, forcing floating storage.

Outlook: A Ticking Clock?

1. Summer route shift: July’s reopening of the Northern Sea Route could cut costs—if sanctions don’t tighten further.
2. Secondary sanctions risk: U.S. scrutiny of STS hubs near Singapore may escalate.
3. China’s appetite: Refiners’ willingness to absorb high costs remains uncertain.