U.S.-China trade talks show signs of thaw, but energy sanctions risks persist

Created on 11.03
Following the October 30 meeting between Chinese and U.S. leaders, trade negotiations in Kuala Lumpur delivered a tentative breakthrough. Washington agreed to cancel the 10% "fentanyl tariffs" on Chinese goods and suspend for one year the 24% reciprocal tariffs, the so-called "penetrative rules," and Section 301 investigations. These measures are expected to take effect by mid-November 2025, though their implementation remains uncertain.
 
Caution remains warranted. During Donald Trump's first term, Washington escalated sanctions on China beyond the scope of trade agreements even after deals were signed. Notably, oil and gas trade was excluded from the recent round of negotiations, leaving the sector exposed as a potential key target for sanctions. Since early October, the U.S., U.K., and EU have each tightened restrictions on Chinese refineries and port operators - moves widely seen as Washington's effort to gain additional leverage in future talks.
 
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Source: Compiled by GL Consulting
 
October Sanctions Extend to State-Owned Refiners
  • U.S. sanctions directly target Rizhao Port, a key hub for crude imports supplying Sinopec's refineries along the Yangtze River, driving refinery utilization in Central China down by nearly 10 percentage points in October. GL Consulting estimates Sinopec's crude run that month could drop by up to 1 million tonnes, with the impact likely to ease in November.
  • The U.K. and EU sanctions on subsidiaries of PipeChina and PetroChina, though less severe as they do not restrict access to the dollar settlement system, still pose risks such as asset freezes, order withdrawals by cautious partners, and shipping insurance denials - adding to transport costs and uncertainty.
 
U.S. Reinstates Sanctions on Teapots, Disrupting Runs and Crude Flows
  • In early October, the U.S. reinstated sanctions on China's independent refiners after a four-month hiatus, marking the fourth round in 2025 targeting entities linked to Iranian crude trade. During the week of October 3–9, Shandong independent refiners' run rate fell sharply by 1.6pp week on week to 51.9%, as Jincheng Petrochemical halted operations entirely.
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Source: OilChem
 
  • Independent refiners in Shandong have been seeking alternative import channels. From April to September, direct imports of "dark crude" into Shandong plunged 47.6% YoY (vs. a 41.9% national decline), while total crude imports rose, driven by increased inflows from Venezuela, Brazil, Russia, and unidentified sources -some likely involving ship-to-ship transfers to evade sanctions.
 
Yulong Petrochemical Hit by Joint U.K.-EU Sanctions
  • Yulong Petrochemical, now under U.K.-EU joint sanctions, faces risks of asset freezes and transaction bans. Amid liquidity concerns, several suppliers have canceled crude deals involving Middle Eastern and Canadian cargoes. Nonetheless, unless sanctions intensify, the long-term impact should remain limited, as Yulong's core feedstock supply and product sales channels are largely intact. Looking ahead, the key risk lies in potential U.S. follow-up actions. If Yulong were cut off from dollar-based settlements, it may be forced to expand imports of Russian crude.
 
The full report dives deeper into:
  • Background and rationale behind the latest sanctions wave
  • Evolution of U.S.-China relations and implications for China's energy imports
  • Impact assessment on independent and state-owned refiners
  • Complete timeline of China's crude import sanctions in 2025