South Korea, Japan refiners keen to resume Far East Russian crude purchases if sanctions ease

South Korean and Japanese refiners are analyzing the recent Ukraine peace talks positively, and major North Asian crude buyers are keen to resume purchasing Far East Russian sweet grades if and when sanctions on Russian oil trades ease or are lifted.

The refining industries in South Korea and Japan broadly welcomed the recent progress in the Russia-Ukraine peace agreements. Traders, feedstock managers and analysts are hopeful that these talks may lead to an end to the conflict and a potential lifting of sanctions on Russian oil.

Far East Russia has always been significant for South Korea, Asia's third-largest crude buyer. It is geographically the closest supply source that could provide 200,000 b/d or more, allowing for significant cost savings on logistics because of the proximity, according to feedstock managers at two major South Korean refiners.

"It's still very early days, as the US, Russia, and Ukraine are discussing only a partial ceasefire agreement ... but this is still a significant change in the mood after years of conflict, and we are finally seeing light at the end of the tunnel leading to a possible lifting of Russian oil sanctions," said a feedstock manager at a major Japanese refiner.

Major South Korean and Japanese refiners and trading firms, including ENEOS, Idemitsu Kosan, SK Innovation, Mitsui and GS Caltex, were among the top buyers of Far East Russia's ESPO Blend, Sokol and Sakhalin Blend crude before the sanctions.

SK Innovation, South Korea's top refiner, imported an average of 620,000 barrels of Sokol crude per month before the sanctions and irregularly brought in 740,000 barrels of ESPO per month. GS Caltex imported an average of 294,000 barrels of Sokol per month and intermittently brought in 720,000 barrels of Sakhalin Blend per month. Hyundai Oilbank irregularly imported 700,000 barrels of Sokol and Sakhalin Blend per month, while S-Oil intermittently imported 700,000 barrels of ESPO on a per-month basis, according to Platts data gathered from multiple refinery sources.

Japan imported an average of more than 150,000 b/d from Russia from 2017 to 2019, placing the non-OPEC producer among the nation's top five crude suppliers, data from the Ministry of Economy, Trade, and Industry showed.

However, since 2022, South Korean and Japanese refiners have actively phased out Russian crude imports, with many top buyers suspending new contracts and hesitating to purchase Russian crude to avoid trade, logistical, legal and financial complications amid sanctions.

Japan's crude imports from Russia was merely 2,000 b/d in 2023, and it took zero cargoes in 2024, while South Korea completely halted purchases of ESPO, Sokol and Sakhalin Blend crude over 2023 and 2024.

Far East Russian crude economics

Feedstock management sources indicated that fundamentally, no refiner would consider importing Russian crude oil unless the war and geopolitical risks are completely resolved. If sanctions were to be lifted, they would analyze how the prices of Russian crude would be shaped from an economic standpoint, starting from the moment the risks are alleviated.

There is an expectation that affordable Russian crude oil will enter the market following the end of the conflict. Once the risks are fully mitigated, both ESPO and Sokol crudes would be attractive options for refineries due to favorable transportation distances, quality and pricing, according to a feedstock manager at a major South Korean refiner based in Ulsan.

Industry sources noted that the voyage time from Far East Russian ports, including Kozmino and De-Kastri Terminal, to North Asia, is less than a week, compared to 10-15 days from Southeast Asia and Oceania, up to 30 days from Persian Gulf ports, and more than 45 days from the US Gulf Coast.

"The short voyage makes it economically viable, especially during times when freight rates are very high and expensive," said a feedstock and logistics manager at another major South Korean refiner.

Furthermore, resuming Far East Russian crude trades for Japan could serve as a bargaining tool for Middle Eastern spot cargo purchases, as light sweet Sokol and Sakhalin Blend, along with medium sweet ESPO, could provide alternatives to various Persian Gulf grades, according to a feedstock manager at a Japanese refiner and a market analyst at an integrated Japanese trading company.

Sokol crude, with an API gravity of 39.7 degrees and a sulfur content of 0.18%, often competes directly with some light sour Middle Eastern grades, such as Abu Dhabi's Murban crude, known for its high yield of distillates like jet fuel and kerosene.

Platts, part of S&P Global Commodity Insights, assessed Sokol crude at a discount of $1.75/b to Platts front-month Dubai crude assessments on a CFR North Asia basis on March 20. The second-month ESPO was last assessed at a discount of $5.80/b to Platts Dubai on an FOB Kozmino basis.