Shandong Yulong Petrochemical, China’s newest refinery, has swiftly become a potent emblem for the unintended effects of Western sanctions. Barely a year after its launch, the 400,000 b/d complex in Shandong province has purchased around 350,000 b/d of Russian crude for November delivery, effectively running almost entirely on discounted Russian oil after losing access to Western supplies following sanctions by the UK and EU. Its rise illustrates how punitive measures meant to isolate Moscow have instead bound together sanctioned Russian producers and sanctioned Chinese refiners, creating a new, self-contained trade in the shadows of the global oil market.
In October 2025, Western governments tightened restrictions on Russia’s energy exports. The United Kingdom designated Shandong Yulong on October 15 as an entity ‘supporting the Russian energy sector’, followed by the EU’s formal inclusion of the refinery on October 23. A day earlier, the United States sanctioned Rosneft and Lukoil, the two Russian state producers that account for a large share of Moscow’s oil exports. Rather than isolating these players, the measures effectively linked them: a newly commissioned Chinese refinery searching for stable crude supplies, and Russian producers suddenly shut out of Western markets.
Before November, Yulong’s sourced its feedstock from a diverse portfolio including Canada, the Middle East, Angola, Brazil and Russia. That pattern has now flipped. For November delivery volumes, the refinery secured roughly 350,000 b/d of Russian crude, compared with only 100,000 b/d in earlier months of the year. With the plant currently operating at about 90% of its 400,000 b/d capacity, Russian deliveries now provide almost all its feedstock. In practice, Yulong has transitioned from a mixed-supply newcomer to a facility almost entirely fueled by Russian oil.
The shift was driven by both necessity and opportunity. Several Canadian cargoes (reported 4 Aframax shipments of high-acid, high-TAN crude) that had been arranged for the December delivery cycle can no longer be sent to the refinery. Those barrels are now being resold on the secondary market, as sanctions make their discharge in China impossible. The result is that Russian crude has become not just the cheapest option for Yulong, but effectively the only one available. Venezuelan oil supplies could also kick in at some point in the future, however, there, payment is even more difficult to organize than in the case of Russian exports. For Moscow, the plant provided a reliable outlet, with Russian exporters effectively tripling their sales to Shandong in a period when many Indian refiners are vacillating between maintaining their pace of Urals imports or to curb them.
Operationally, the young refinery is running at full throttle. In September and October, throughput reached roughly 90% of its design capacity of 400,000 b/d, contributing to record-high Chinese crude runs in those two months. In mid-September, Yulong achieved on-specification ethylene output from its new 12 mtpa naphtha cracker, its second such unit after the first (with the same capacity) came online in December 2024. Earlier in the year, four downstream petrochemical plants had begun operation, and by early September the company added another unit producing ethylene oxide and ethylene glycol.
Those products are being sold externally into a regional market already awash with supply, deepening the oversupply that has been weighing on chemical prices across Asia. Under normal conditions, that would threaten margins for any producer—especially a newly commissioned one still scaling up. But Yulong’s unique position has turned a potential weakness into a competitive edge. Forced by sanctions and trade restrictions to source almost all its feedstock from Russia, the refinery now benefits from some of the cheapest crude available anywhere in the world. The involuntary shift to discounted Russian oil has sharply reduced its operating costs, offsetting the deflation in product prices and keeping the complex profitable even in an oversupplied regional market. With nearly all its crude now arriving from Russia, Yulong’s cost base has fallen even as production expands—an inversion of the pressure Western sanctions were intended to create.
The reconfiguration of Yulong’s crude imports will inevitably require some careful revision of its feedstock strategy to maintain the refinery’s targeted product yield. Until recently, Yulong relied on a balanced mix of very heavy and sour Canadian crude and Iraqi Basrah Heavy combined with lighter grades such as Russia’s Sokol and ESPO – to produce the optimal blend for its highly sophisticated distillation units. With Canadian and Middle Eastern barrels now barred, that balance is under pressure.
Some analysts remain sceptical about whether Yulong can secure the heavy crude it needs to keep product output steady. However, others note that Russia’s Urals blend has a similar yield profile to Yulong’s previous mix and could substitute for it without major adjustment – though that would likely mean curbing purchases of lighter Sokol and ESPO grades further down the line. In any case, Russia alone can meet most of Yulong’s requirements: Gazprom Neft could redirect part of its Arctic ARCO crude (24 degrees API) to Yulong, supplying the heavy feedstock needed to maintain the plant’s efficiency and high-value output.
In this newly contorted energy landscape, Shandong Yulong Petrochemical is a symbol of how sanctions can forge new supply chains faster than they dismantle old ones – a freshly built Chinese complex running almost exclusively on Russian oil, both sides sustaining each other inside a shadow market of their own making.
By Natalia Katona for Oilprice.com
