As the US-Israeli military campaign against Iran disrupts global energy markets and sends Brent crude past $106 per barrel, China’s sprawling network of small independent refineries has emerged as a structural shock absorber. Known colloquially as “teapot” refineries for their modest scale relative to state-owned giants like Sinopec and PetroChina, these privately owned facilities — concentrated heavily in Shandong province — have for years imported discounted Iranian and Russian crude through channels that operate largely outside Western sanctions frameworks.
Their role in China’s energy architecture is now being tested by the most serious disruption to Iranian oil flows in decades.
The Teapot Model
China’s teapot refineries account for roughly one quarter of the country’s total processing capacity. Unlike the state-owned majors, which tend to source crude through transparent long-term contracts, teapots have built their business on opportunistic purchasing — buying sanctioned or discounted barrels that larger firms avoid for reputational or compliance reasons.
Shandong’s teapot refineries were operating at 54.58% capacity in the week ending March 5, up 2.89 percentage points from the prior period — a sign that available Iranian and Russian barrels were still flowing in the early weeks of the conflict. Most March seaborne arrivals were loaded before the war’s most intensive phases, meaning the full impact of supply disruption has yet to register.
China’s Iranian Oil Dependency
The scale of China’s reliance on Iranian crude is substantial. According to data from Kpler, China purchased more than 80% of Iran’s shipped oil in 2025. Iranian crude imports into China averaged 1.4 million barrels per day last year, representing a significant portion of the country’s total seaborne imports of 10.4 million barrels per day.
Supply Disruption Ahead
China’s total March seaborne crude imports fell to 10.19 million barrels per day, down from 11.51 million in February. Kpler analyst Muyu Xu has warned that China should expect a “sharp decline in April arrivals” as the conflict’s disruption of loading and transit routes takes full effect.
Payments for Iranian oil are conducted in renminbi through China’s Cross-Border Interbank Payment System (CIPS), bypassing the US dollar-denominated SWIFT network. This financial architecture has allowed trade to continue despite successive rounds of American sanctions.
An estimated 165 million barrels of Iranian crude are currently sitting in floating storage on tankers outside the Persian Gulf — roughly four months’ worth of China’s Iranian imports. Whether and how these cargoes reach their destinations will depend on the military situation in the Strait of Hormuz and broader Gulf waters.
Strategic Hedging
China’s energy diversification is not accidental. In 2021, President Xi Jinping stated that China would take its energy supply “into its own hands,” a directive that has shaped policy across multiple sectors — from domestic renewable buildout to the cultivation of alternative crude sources and payment channels.
The war has also reshuffled flows elsewhere. Russian oil tankers have begun changing course to India after the Trump administration relaxed certain US sanctions, potentially opening new competitive dynamics for discounted barrels that China’s teapots have traditionally absorbed.
Outlook
The teapot model’s resilience has limits. If Iranian exports are physically blocked rather than merely sanctioned — through naval interdiction or destruction of loading infrastructure — China’s independent refiners will face the same supply crunch as everyone else. The 165 million barrels on water provide a buffer, but not an indefinite one.
For now, the teapots continue to process what they can source, offering China a degree of insulation that few other major importers enjoy. How long that advantage holds depends on whether the conflict escalates further — or finds a path toward de-escalation.