China the Main Beneficiary of Sanctions Against Russia

Commentary With the United States and many European Union countries imposing trade sanctions on Russia and banning the import of Russian oil, it is timely to see who the losers and winners are of this ban. As I have previously written, trade sanctions rarely hurt the country that they are imposed on as they are able to find alternatively buyers for their valuable products and commodities. In the case of Russian oil, you can even make more money than if there was no ban. Let me show you how. Russia currently produces around 11.3 million barrels of oil daily and exports 7.1 million barrels. Countries that import 4.8 million barrels have imposed bans, while countries that import the remaining 2.3 million have no bans with business as usual. The oil price jumped to its highest levels since 2008 as the U.S. and European allies considered banning Russian oil imports. In fact, at their peak, global oil prices spiked about 60 percent since the start of 2022, and we are all feeling it at the bowser. Since then, it has plummeted back down, but it has yet to translate to relief on our wallets as petrol prices continue to climb to the sky. The Losers Demand for oil remains strong mainly due to the “three E’s”—these groups are the main losers of sanctions: Economy: economic production requires oil, and people need to travel to work. Education: kids need to travel to educational institutions. Elderly: the elderly need to travel to medical appointments. The Winners Can the 4.8 million barrels gap come from other sources? The short answer is no. Not only did we allegedly reach peak oil production in 2006, countries that can produce more will not do so. Take Saudi Arabia, the second-largest producer at 10.1 million barrels a day, also known as the Central Bank of Oil. The Saudis can produce another 2 to 2.5 million barrels a day due to their spare capacity but will not produce any more. They will not do as it will hurt their profitability and upset their OPEC cartel partner, Russia. This is the reason why Saudi Crown Prince Mohammed bin Salman declined a phone call from U.S. President Joe Biden. U.S. President Joe Biden delivers remarks on Russia’s attack on Ukraine, in the East Room of the White House in Washington, on Feb. 24, 2022. (REUTERS/Leah Millis) Another potential source is Iran, the fourth-largest producer at 4.5 million barrels a day. Iran also has extra capacity, but, just like the Saudis, it would hurt their profits by producing more. Not only that, Iran would require the U.S. and the EU to drop all of their sanctions on Iran, including its ability to acquire nuclear weapons. This is something both the U.S. and EU will resist at all costs. Oil can only be transported via pipeline or tanker (land or sea). Of the 19 countries that share either a land or sea border with Russia, only China has the capability and capacity to import this additional 4.8 million barrels and export it. China already imports 1.6 million barrels a day from Russia, and tripling its import capacity can be done in a matter of months under their Belt and Road Initiative. The Saudis have been spooked by the prospect of losing their “number one China oil supplier” status to Russia or that one day China may not need their oil. So much so that Saudi’s petroleum arm, Saudi Aramco, recently offered to build China a new refinery facility in China with a capacity of 300,000 barrels a day, so long as it was supplied with Saudi oil. Despite the U.S. National Security Adviser Jake Sullivan warning China that it will “absolutely” face consequences if it helped Moscow evade sweeping sanctions over the war in Ukraine, it has fallen on death ears. China is happy to buy Russian oil at a discount and profit by on selling it or using it for their global manufacturing ambitions. After all, Chinese Leader Xi Jinping himself is well-versed in oil smuggling as he presided over the worst episode of oil smuggling in China’s history when he was the governor of the Fujian province in 1999. The $10 billion Xiamen smuggling scandal came to light after the then-Premier Zhu Rongji found it surprising that China’s fuel excise receipts were not increasing in line with the explosive GDP growth that China experienced in the late 90s. Zhu launched an immediate investigation and vowed that any foreign petroleum company that had illegally imported petrol and not paid excise duty would be permanently banned from any dealings with China. A maze of crude oil pipes and valves is pictured during a tour by the Department of Energy at the Strategic Petroleum Reserve in Freeport, Texas, on June 9, 2016. (Richard Carson/Reuters) To Zhu’s great surprise, the perpetrator of this excise rip off was local entrepreneur Lai Changxing. Zhu famously commented that “executing him three times would not be enough.” This was because he was aided in his efforts by hundreds of Chinese government officials, which included customs and law enforcement. This scandal resul

China the Main Beneficiary of Sanctions Against Russia

Commentary

With the United States and many European Union countries imposing trade sanctions on Russia and banning the import of Russian oil, it is timely to see who the losers and winners are of this ban.

As I have previously written, trade sanctions rarely hurt the country that they are imposed on as they are able to find alternatively buyers for their valuable products and commodities. In the case of Russian oil, you can even make more money than if there was no ban.

Let me show you how.

Russia currently produces around 11.3 million barrels of oil daily and exports 7.1 million barrels. Countries that import 4.8 million barrels have imposed bans, while countries that import the remaining 2.3 million have no bans with business as usual.

The oil price jumped to its highest levels since 2008 as the U.S. and European allies considered banning Russian oil imports.

In fact, at their peak, global oil prices spiked about 60 percent since the start of 2022, and we are all feeling it at the bowser. Since then, it has plummeted back down, but it has yet to translate to relief on our wallets as petrol prices continue to climb to the sky.

The Losers

Demand for oil remains strong mainly due to the “three E’s”—these groups are the main losers of sanctions:

Economy: economic production requires oil, and people need to travel to work.

Education: kids need to travel to educational institutions.

Elderly: the elderly need to travel to medical appointments.

The Winners

Can the 4.8 million barrels gap come from other sources? The short answer is no.

Not only did we allegedly reach peak oil production in 2006, countries that can produce more will not do so.

Take Saudi Arabia, the second-largest producer at 10.1 million barrels a day, also known as the Central Bank of Oil. The Saudis can produce another 2 to 2.5 million barrels a day due to their spare capacity but will not produce any more.

They will not do as it will hurt their profitability and upset their OPEC cartel partner, Russia.

This is the reason why Saudi Crown Prince Mohammed bin Salman declined a phone call from U.S. President Joe Biden.

Epoch Times Photo
U.S. President Joe Biden delivers remarks on Russia’s attack on Ukraine, in the East Room of the White House in Washington, on Feb. 24, 2022. (REUTERS/Leah Millis)

Another potential source is Iran, the fourth-largest producer at 4.5 million barrels a day. Iran also has extra capacity, but, just like the Saudis, it would hurt their profits by producing more.

Not only that, Iran would require the U.S. and the EU to drop all of their sanctions on Iran, including its ability to acquire nuclear weapons. This is something both the U.S. and EU will resist at all costs.

Oil can only be transported via pipeline or tanker (land or sea). Of the 19 countries that share either a land or sea border with Russia, only China has the capability and capacity to import this additional 4.8 million barrels and export it.

China already imports 1.6 million barrels a day from Russia, and tripling its import capacity can be done in a matter of months under their Belt and Road Initiative.

The Saudis have been spooked by the prospect of losing their “number one China oil supplier” status to Russia or that one day China may not need their oil. So much so that Saudi’s petroleum arm, Saudi Aramco, recently offered to build China a new refinery facility in China with a capacity of 300,000 barrels a day, so long as it was supplied with Saudi oil.

Despite the U.S. National Security Adviser Jake Sullivan warning China that it will “absolutely” face consequences if it helped Moscow evade sweeping sanctions over the war in Ukraine, it has fallen on death ears. China is happy to buy Russian oil at a discount and profit by on selling it or using it for their global manufacturing ambitions.

After all, Chinese Leader Xi Jinping himself is well-versed in oil smuggling as he presided over the worst episode of oil smuggling in China’s history when he was the governor of the Fujian province in 1999.

The $10 billion Xiamen smuggling scandal came to light after the then-Premier Zhu Rongji found it surprising that China’s fuel excise receipts were not increasing in line with the explosive GDP growth that China experienced in the late 90s.

Zhu launched an immediate investigation and vowed that any foreign petroleum company that had illegally imported petrol and not paid excise duty would be permanently banned from any dealings with China.

crude-oil-pipes
A maze of crude oil pipes and valves is pictured during a tour by the Department of Energy at the Strategic Petroleum Reserve in Freeport, Texas, on June 9, 2016. (Richard Carson/Reuters)

To Zhu’s great surprise, the perpetrator of this excise rip off was local entrepreneur Lai Changxing. Zhu famously commented that “executing him three times would not be enough.”

This was because he was aided in his efforts by hundreds of Chinese government officials, which included customs and law enforcement.

This scandal resulted in 14 death sentences, 11 jailed for life, and 58 others getting lesser jail sentences.

The most outrageous revelation was that the receiving oil terminal was built by engineers from the People’s Liberation Army.

Although then-Governor Xi, now Party Chief Xi, did not face any punishment, he has the power to exonerate all those guilty smugglers in his effort to move Russian oil.

While all oil producers benefit from Russian sanctions, the main beneficiary here is China.

Views expressed in this article are the opinions of the author and do not necessarily reflect the views of The Epoch Times.


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Tshung Chang is a company director with extensive experience in the financial services industry across the Asia-Pacific region. He is fluent in Mandarin, Cantonese, English, and Bahasa. Chang has written and spoken extensively about the interference and influence activities of the Chinese Communist Party in Australia. Chang is a contributor to the book "Trump, COVID, and the World" (Unchain Australia).