Oil Refiners Look to Middle-East For Supply as Restrictions Loom

Oil refiners in India and China have significantly ramped up crude purchases from the Middle East and the Atlantic Basin, driven by concerns over potential restrictions on imports from Russia and Iran that may limit supply access.

Indian refiners have been proactive in securing alternative crude sources. This week, two state-owned Indian refiners acquired up to 6 million barrels of Oman and Abu Dhabi's Murban crude for February prompt loading, according to traders. Additionally, Indian Oil Corporation procured 2 million barrels of WTI Midland through a tender process, indicating a strategic shift in sourcing.

Chinese buyers, including state-owned Unipec and private refiners in Shandong, have also increased imports of Angolan crude. Some local processors have turned to Abu Dhabi oil for prompt supplies. The buying surge reflects a reduced availability and higher costs of Russian Urals, ESPO, and Iranian Light crude, alongside fears of further sanctions on tankers transporting these cargoes.

The evolving purchasing patterns are occurring against a backdrop of tightening global crude supplies. The U.S. has implemented stricter curbs on oil flows from Tehran and Moscow, while also imposing additional sanctions on companies providing logistical and financial support to these nations. The outgoing Biden administration and previous Trump policies have added to the restrictions, creating uncertainty in the market.

In China, refiners in Shandong province—known for processing Iranian crude—have been directed to ban sanctioned oil tankers from docking or offloading at their terminals, further straining access to these supplies.

The Middle East has emerged as a primary beneficiary of this shift. Its medium-sour crude grades, proximity to key markets, and availability of cargoes make it an attractive source for Indian and Chinese refiners. Companies like TotalEnergies SE have played a significant role in meeting demand by aggregating physical cargoes of various Middle Eastern grades, including Upper Zakum and Oman crude.

Market indicators reflect this trend. Prompt timespreads for Dubai swaps—a proxy for the Middle Eastern oil market—have risen faster than those for London’s Brent swaps over the past month, according to PVM Oil Associates Ltd. In December, Russia and Iran accounted for about a quarter of China’s imports, while Russian crude made up nearly one-third of India’s total purchases, per data from Kpler.