China’s imports of crude oil from Russia are projected to reach a new all-time high in February 2026, extending a three-month growth streak as independent Chinese refiners capitalize on deep discounts and a pivot away from Russian supplies by India.

Data from ship-tracking and commodity analytics firms show Russia’s seaborne oil deliveries into China will likely hit roughly 2.07–2.08 million barrels per day (bpd) in February, up from an estimated 1.7 million bpd in January.

This surge, if realized, would mark China’s highest Russian crude intake on record, underscoring significant shifts in global energy flows amid sanctions, trade realignments, and evolving buyer preferences.

Drivers of the Surge: Discounts, “Teapots,” and India’s Pullback

One of the key factors behind the surge is the steep discounting of Russian crude to meet China’s demand profile. Russian barrels, particularly the Urals grade, have been priced $9–$11 per barrel below benchmark ICE Brent for January/February China deliveries — the lowest in years — making them especially attractive to cost-conscious refiners.

Alongside Urals, export streams such as Sokol, Varandey, and ESPO (Eastern Siberia–Pacific Ocean blend) are adding to volumes, intensifying competition with alternative sources such as Iranian crude.

China’s independent refiners, known as “teapots”, are among the most active buyers of this discounted Russian crude. These smaller, flexible facilities typically process cargoes from sanctioned suppliers — including Russian, Iranian, and Venezuelan origins — and are more willing to buy at steep discounts compared with larger, state-owned refiners.

A senior trader noted that, for refiners focused on margins, Russian supplies have become relatively more competitive than similar quality barrels from Iran, especially in the context of geopolitical uncertainty.

India’s Reduced Russian Imports and Geopolitical Pressures

The record Chinese volumes come as India’s Russian crude imports retreat sharply. After Western sanctions related to the war in Ukraine and diplomatic pressure tied to trade negotiations with the U.S., New Delhi’s imports of Russian crude have fallen to estimated multi-year lows. February deliveries to India are estimated at about 1.159 million bpd, down from much higher levels last year.

Analysts say this reduction has redistributed available barrels, which producers have redirected toward China at discounted pricing. India’s reorientation has also opened space for other suppliers, with Saudi Arabia reportedly supplanting Russia as New Delhi’s top crude source in early February, aided by price cuts and logistic advantages.

Uncertainty surrounding potential U.S. military action against Iran has also influenced buyer behavior. Traders and analysts have noted that concerns over the reliability of Iranian shipments — amid the broader political backdrop — have made Russian crude comparatively more attractive and predictable for Chinese buyers.

This dynamic has weighed on Iranian imports into China, which slipped in February relative to January levels, even as overall crude flows remain strong.

Shifting Epicenters of Russian Oil Demand

Russia’s energy export landscape is increasingly bifurcated: while Europe and the U.S. have tightened sanctions, and India is curbing purchases under trade and diplomatic pressure, China has emerged as the dominant absorption market for Russian crude. Since late 2025, Beijing has replaced New Delhi as Moscow’s top seaborne oil client.

The result is a reshaping of global crude supply chains where Chinese refiners — particularly independents — are shouldering more of Russia’s export flows, exerting downward pressure on Urals pricing, and driving broad shifts in regional crude sourcing patterns.

The discounting strategy has helped sustain flows but comes at a cost to Russian oil revenue. With barrels trading at deep discounts and inventories in floating storage swelling, Russia’s ability to maintain export revenue levels is under strain. Additional Western sanctions and logistics pressure may further complicate the outlook.

Should China’s appetite reach saturation — or should state-owned refiners remain cautious due to sanctions enforcement — Russia may eventually face greater systemic pressure to cut output or find alternative buyers.

For Chinese refiners, the ability to secure discounted Russian crude enhances margins in a competitive Middle East supply environment, while also supporting longer-term strategic stockpiles. For Russia, maintaining export volume to China is essential not just for revenue but also for logistical continuity amid sanction-induced disruptions.

The broader context of these shifting flows also reflects how geopolitical pressures, including U.S. and EU sanctions, trade agreements, and regional rivalries, are actively reshaping traditional energy trade patterns.

Bottom Line

• China’s record-breaking Russian crude imports in February illustrate a major realignment in global oil markets:
• China is absorbing historically high Russian volumes, driven by steep discounts and robust refining demand.
• India’s reduced purchases — influenced by sanctions and trade diplomacy — have opened space for Chinese demand.
• Independent Chinese refiners (teapots) are key drivers, willing to capitalise on discounted barrels amid geopolitical uncertainty.
• The interplay of market economics and political strategy is reshaping where and how Russian oil flows, with implications for pricing, refinery margins, and energy security dynamics across Asia and beyond.

The pan-European STOXX 600 index closed modestly higher on Monday, at 618.52 points (+0.13%), snapping a recent volatile patch as financial shares rallied and investors shifted focus to a packed corporate earnings calendar that could provide fresh insight into the health of European businesses.

Financials led the advance, with the banks sub-index (.SX7P) rising 1.4% and insurance stocks (.SXIP) gaining 0.7%. The rebound came after lenders suffered their largest weekly drop since late March 2025 last week, driven by fears that newer generative AI tools could disrupt traditional banking and insurance models.

“The AI scare trade is on hold as we start a new week,” said Kathleen Brooks, research director at XTB. “There is a growing sense that fears about AI swallowing up large swathes of global jobs and industries are overdone and this week could see a recovery in some of the sectors that have seen the worst of the selloff.”

The bounce in heavyweight banks helped offset weakness in technology (.SX8P, -1.0%) and luxury (.STXLUXP, -1.9%). French software company Dassault Systèmes fell sharply by 10.4%, weighed down by investor concerns over its challenging 2029 revenue and cloud targets. Basic materials shares also declined 0.6%, pulling back after a recent strong run. Spain’s IBEX index, heavily weighted toward banks, led gains among major regional benchmarks, rising 1%.

The broader recovery followed a better-than-feared early earnings season despite steep U.S. tariffs, which helped the STOXX 600 touch a record high last week and post its third consecutive week of gains. With Monday relatively quiet on the earnings front, attention now turns to results due later this week from Orange, Zealand Pharma, Airbus, and BE Semiconductor.

So far, 60% of European companies have beaten earnings expectations this season—above the typical quarterly average of 54%—while earnings are now expected to have fallen 1.1% year-on-year, a significant improvement from the 4% drop anticipated earlier in the month (LSEG data).On the economic front, euro zone industrial production rose 1.2% year-on-year in December—down from November’s 2.5% increase—but still signaled resilience at a time when investors are anticipating that fiscal stimulus measures could revive the sector.

Orsted gained 4.5% after Kepler Cheuvreux upgraded the Danish offshore wind developer to “buy” from “hold.”The modest advance reflects a broader shift in sentiment. After weeks of volatility in late January and early February—driven by fears that advanced AI tools from Anthropic, OpenAI, and others could squeeze profits in software, financial services, and other knowledge-based industries—investors appear to be reassessing the immediacy and severity of the threat.

A string of better-than-expected earnings results, combined with signs that large corporations are integrating AI to enhance rather than replace existing operations, has helped stabilize sentiment. The financials rally is particularly notable as banks and insurers had been under pressure from concerns that generative AI could automate routine tasks (loan processing, claims handling, compliance checks) and erode pricing power.

The rebound suggests investors are increasingly viewing AI as a tool for efficiency gains rather than an existential threat—at least in the near term.

The week ahead will be pivotal. Earnings from Orange, Zealand Pharma, Airbus, and BE Semiconductor will provide further evidence of corporate health amid tariff headwinds and AI disruption fears. Euro zone industrial production data already showed resilience, and upcoming releases—including U.S. payrolls, CPI, retail sales, and Fed speakers—could influence global risk appetite and yield movements, indirectly affecting European equities.

While AI concerns have eased somewhat, they remain a key risk theme. Sectors with high exposure to routine knowledge work or legacy software maintenance continue to trade at discounted multiples. Conversely, companies demonstrating clear AI integration strategies and resilient end-market demand are seeing relative strength.

The STOXX 600’s recent record high and three-week winning streak indicate that fears of widespread AI-driven profit destruction may have been overdone—at least for now. However, with a busy earnings calendar and macro data ahead, volatility could return quickly if results disappoint or if fresh AI breakthroughs reignite disruption worries.

Currently, the financials-led bounce and focus on upcoming earnings suggest investors are willing to give European corporates the benefit of the doubt, betting that AI will prove more evolutionary than revolutionary for most established businesses in the near term. The week’s results will be critical in testing that optimism.

The Japanese yen weakened on Monday, falling 0.4% to 153.32 per U.S. dollar, following the release of meagre economic growth figures that underscored the challenges facing the government of Prime Minister Sanae Takaichi.

This came after the yen surged nearly 3% last week, marking its largest weekly gain in around 15 months, driven by investor optimism over Takaichi’s Liberal Democratic Party (LDP) election landslide.

Despite last week’s rally, Monday’s data revealed that Japan’s economy barely expanded in the fourth quarter of 2025, recording an annualized growth rate of just 0.2%. Economists said the sluggish expansion highlights structural challenges — including stagnant domestic consumption and a tight labor market — that could constrain the government’s ability to stimulate broader economic momentum.

“After the election, the political dust may be settling a bit, for the near term at least, and we are seeing the yen increasingly becoming sensitive to data,” Reuters quoted Mohamad Al-Saraf, FX and fixed income associate at Danske Bank, as saying.

Bank of Japan (BOJ) Governor Kazuo Ueda and Prime Minister Takaichi held their first bilateral meeting since the election on Monday. According to Ueda, the discussion was a “general exchange of views on economic and financial developments,” with no specific requests on monetary policy made by the prime minister.

The BOJ’s next policy meeting is scheduled for March, with market participants assigning around 20% probability for a rate hike. Economists have largely predicted that the central bank will wait until July before any additional tightening.

In December, the BOJ raised its key rate to 0.75%, the highest level in 30 years. Yet this remains well below interest rates in most major economies, contributing to a weaker yen and making the currency highly sensitive to both domestic data and foreign capital flows. Past periods of yen underperformance have even prompted direct interventions by the government and central bank to stabilize the currency.

U.S. Dollar and Fed Rate Speculation

Meanwhile, the U.S. dollar remained broadly steady on Monday, with the U.S. Dollar Index inching up 0.1% to 97.06, after falling 0.8% last week. The stability reflects investor confidence in the Federal Reserve’s measured approach following lower-than-expected January inflation data, which has reignited speculation that the central bank could cut interest rates later this year.

Money market traders are pricing in 62 basis points of rate easing across 2026, implying two quarter-point cuts and about a 50% chance of a third. Analysts predict the first reduction will likely occur in June, with the market assigning over an 80% probability to a 25-basis-point cut.

“The markets are flirting with pricing in a third cut,” said Kyle Rodda, senior financial analyst at Capital.com.

The lower inflation reading also influenced the U.S. Treasury market. The two-year Treasury yield, which closely tracks expectations for Fed policy, fell to its lowest level since 2022 on Friday, while the 10-year yield dropped by 4.8 basis points.

Global Currency Movements

Other major currencies showed mixed movement on Monday:

• Euro: Slightly down 0.1% at $1.1854.
• British Pound: Eased to $1.3638.
• Swiss Franc: Marginally weaker at 0.7694 per dollar, with investors wary of intervention from the Swiss National Bank to curb appreciation.
• Australian Dollar: Firmed 0.1% to $0.7076, just below last week’s three-year high of $0.71465.
• New Zealand Dollar: Flat at 0.6037 ahead of the Reserve Bank of New Zealand’s policy meeting, where rates are widely expected to be held steady.

Liquidity is expected to remain thin through Monday, as markets in the U.S., China, Taiwan, and South Korea are closed for holidays. Analysts cautioned that volatility could return once trading resumes in full.

Yen Sensitivity and Global Implications

The combination of political shifts, weak domestic growth, and global monetary trends has made the yen increasingly data-sensitive, according to analysts. While Takaichi’s LDP victory initially boosted sentiment and prompted speculative inflows into Japanese assets, underlying economic stagnation has tempered the currency’s gains.

The yen’s performance also highlights Japan’s broader structural challenges, including an ageing population, low consumption, and dependence on external trade, which continue to influence investor perceptions. Meanwhile, the U.S. dollar’s relative stability and expectations for Fed rate cuts suggest that capital flows may continue to favor the U.S., potentially pressuring the yen further in the coming months.

“The market narrative is shifting from election optimism to economic fundamentals, and for the yen, that means heightened sensitivity to every data release,” said Al-Saraf.

As central banks globally navigate inflation, growth, and policy coordination, the yen-dollar exchange rate has become a key indicator of investor sentiment toward Japan’s economic trajectory and broader risk appetite in the foreign exchange markets.