Chinese Refiners Pay Record Premiums for ESPO as Iran Blockade Redirects Flows
Kozmino loadings rose 6% in the first seven months of 2026 as China scrambled to replace Iranian barrels, while a US Senate tariff bill clouds the trade.
Chinese refiners are paying record premiums for Russia's East Siberia-Pacific Ocean crude, oilprice.com reported Thursday (2026-09-03), as the US naval blockade on Iran forces independent processors to replace barrels they can no longer access. ESPO, loaded at Russia's Pacific port of Kozmino, has become the most available large-volume substitute for sanctioned Iranian crude among Chinese buyers.8
Total Kozmino loadings rose 6% in January-July 2026 compared with a year earlier, Russian daily Kommersant reported Wednesday (2026-09-02), citing Argus. China remained the dominant buyer but its share of ESPO shipments fell to 83% from 88% a year earlier. India's portion rose to 16% from 12% over the same period, per Kpler and Vortexa data cited in the Argus report.7,8
The Indian share gain is not a straightforward displacement of Chinese demand. Analysts said Wednesday (2026-09-02) that India absorbed spot volumes Chinese refiners passed on in the early months of the Iran conflict, when Beijing cut overall crude imports before resuming buying. China's majors, led by Unipec, had already been snapping up August and September ESPO cargoes from July (2026-07-24), securing supply earlier than usual as Middle East shipping risks intensified, Rigzone reported.7,4
The premium pricing for ESPO has affected the broader Russian crude market. Urals, Russia's main export blend shipped through the Baltic and Black Sea, stood at $86.70 a barrel on September 5, roughly $8 below ICE Brent crude front-month at $94.97. That discount has narrowed sharply from the $27-a-barrel gap to Brent documented by The Economist in mid-May (2026-05-17), when Western and Ukrainian interdiction of Russia's shadow tanker fleet pushed Urals to its steepest discount against Brent since April 2023.2
The narrowing discount has improved Moscow's revenue picture. Russia's total oil and gas revenues, net of industry payouts, exceeded 683 billion rubles in June, up more than 38% year-on-year, Finance Ministry data released July 4 (2026-07-04) showed. Oil taxes made up roughly 84% of that total. The government paid oil processors 210.6 billion rubles ($2.72 billion) that month to compensate them for the spread between domestic and export prices — a subsidy still running 66% above year-earlier levels.3
The June recovery followed a severe early-year contraction. By February (2026-02), Kremlin oil and gas revenues had fallen 44% year-on-year, with export volumes down a fifth, as shadow fleet disruptions choked deliveries, The Economist reported in May (2026-05-19). That floor could return if the fleet interdiction campaign intensifies again.1
The two scenarios at the other end of the range are similarly far apart. The Brookings Institution's Robin Brooks estimated a prolonged Hormuz closure could deliver Russia another "2022-style windfall," potentially enough to offset the roughly $300 billion in central bank reserves frozen by the West. Former Russian Finance Ministry economist Jacob Nell has warned that revenues could fall below $10 billion a month if pricing and volumes deteriorate.1,2
The US Senate tariff bill adds a legislative complication. Legislation passed by the Senate proposes tariffs of up to 100% on countries buying Russian crude, including China and India. Neither government has indicated compliance. Still, the bill alters the cost calculation for refiners already stretching to pay record ESPO premiums.5,6
Indian refiners showed how fast the supply picture can shift costs. By mid-August (2026-08-18), Russian and Venezuelan grades had become less attractive, Gulf suppliers were demanding higher premiums amid shipping disruptions, and Indian companies were moving toward US, Brazilian and Guyanese barrels, Outlook Business reported. Times of India noted at the same point that crude costs for Indian buyers were rising faster than global benchmarks.6,5
How the Senate bill moves through Congress, and whether shadow fleet interdiction resumes at the intensity that drove Urals $27 below ICE Brent crude front-month in May, are the two signals shaping Russian crude pricing into year-end.2,5