Taiwan’s Naphtha Tightrope: Chips, Sanctions, and a Risky Russian Bet
Taipei’s growing dependence on Russian petrochemicals reveals a deep conflict between its security alliances and its industrial survival.
TAIPEI — Taiwan is finding itself in a bind. On one hand, the island is a linchpin in the global tech supply chain and a proud supporter of Ukraine. On the other, it has quietly become Moscow’s biggest buyer of naphtha, a key petrochemical ingredient, just as Washington ramps up pressure on Russia’s energy revenues.
Fresh trade data shows Taiwan imported around 1.9 million tonnes of Russian naphtha in the first half of 2025—worth about $1.3 billion. That’s more than any other country, even India. Compared with last year, imports jumped 44 percent. Compared with 2022, they’ve surged six-fold. The timing couldn’t be more awkward: Taiwan’s biggest ally is leading the push to cut off Kremlin oil money, while Taiwanese companies are scooping up the discounts.
The Petrochemical Lifeline
The reason is simple. Taiwan’s massive petrochemical plants rely on naphtha to fire up their steam crackers, which produce ethylene, propylene, and other building blocks. Without them, there would be no plastics, no packaging films, and no printed circuit boards—the backbone of the electronics that power smartphones and semiconductors.
Industry insiders point to Formosa Petrochemical as the key player, importing most of the Russian supply. State-backed Novatek in Russia has become its go-to supplier, accounting for nearly three-quarters of Taiwan’s purchases. Since the war in Ukraine began, Taiwan has imported almost 7 million tonnes of Russian naphtha worth close to $5 billion. That’s roughly one-fifth of all Russia’s exports of the fuel.
The draw? Price. Russian cargoes sell at steep discounts compared with alternatives from the Middle East or Southeast Asia. For companies facing weak demand for plastics and high energy bills, those bargains help keep margins alive. When your profits depend on razor-thin spreads, cheap feedstock can feel like a lifeline.
A Political Headache
But what makes business sense is becoming a political liability. Taipei has joined Western sanctions on Russia in other areas, tightening tech export rules and voicing support for Kyiv. Yet naphtha imports are handled by private companies, not the government, and they’ve soared.
That gap has created what analysts call an “ESG arbitrage.” Taiwan reaps the benefit of cheap Russian fuel while its Western allies bear the cost of enforcing sanctions. It’s a clever economic move but a messy diplomatic one.
The problem is only growing. Sanctions enforcement now focuses less on tankers and more on paperwork. To comply with G7 rules, buyers must prove Russian cargoes traded below a $45 price cap. That means invoices, freight details, and insurance contracts—all of which can get murky fast. The more complicated the documentation, the higher the risk banks and insurers walk away.
Cracks in the System
The risks aren’t just on paper. In August, an attack knocked out facilities at Ust-Luga, a Russian port critical for naphtha exports. The disruption sent shockwaves through Asia and exposed Taiwan’s heavy reliance on Russian suppliers. Suddenly, Taiwanese firms were scrambling to replace cargoes with pricier shipments from Saudi Arabia, the UAE, and Southeast Asia.
The United States has taken note. Washington is now tying trade concessions with countries like India to visible cuts in Russian energy imports. For Taiwan, a security partner but also the top Russian naphtha buyer, the spotlight has turned uncomfortably bright.
Compliance Costs Eat Away Discounts
In practice, sanctions bite hardest through finance and insurance. Banks, reinsurers, and maritime insurers increasingly demand airtight proof of compliance. Even small gaps in paperwork can mean no coverage. That pushes buyers to rely on “shadow fleet” tankers—ships with murky ownership, higher freight costs, and more risk.
The irony? The discounts that made Russian cargoes attractive are shrinking once you add in higher insurance premiums, legal checks, and reputational risks. What used to look like a cheap option is starting to feel like a balance sheet liability.
What’s at Stake for Taiwan
There’s also the downstream effect. Plastics and materials made from Russian naphtha end up in global supply chains. Western brands sourcing packaging or circuit boards from Taiwan could face backlash if their products trace back to Russian oil. With sustainability disclosures tightening in Europe and North America, that’s a brand risk many companies don’t want to carry.
Looking ahead, analysts see three big things to watch. First, whether Russia repairs Ust-Luga quickly or faces prolonged export limits. Second, whether Taiwan’s import patterns shift toward Middle Eastern suppliers or toward liquefied petroleum gas as a substitute. Third, whether regulators tighten the paperwork burden further, squeezing out the last of Russia’s discounts.
The likeliest scenario? Taiwan won’t cut Russian naphtha entirely, but it will require more disclosure and proof of origin. Companies will hedge by signing more long-term deals with non-Russian suppliers while keeping the option open for occasional discounted cargoes.
The Bigger Picture
For investors, the story is less about barrels and more about documentation. Firms that prove their supply chains are clean, diversified, and fully insured will earn trust and likely higher valuations. Those stuck with Russian-heavy contracts, shadow fleets, and nervous customers may see margins erode fast.
In the end, Taiwan’s naphtha gamble shows how modern sanctions work. They don’t always stop ships from sailing. Instead, they pile up compliance hurdles until what once seemed like a bargain becomes more trouble than it’s worth.
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