U.S. sanctions on Iran are being effectively neutralized as they run up against China's private refiners. The so‑called "teapot" small and midsize private refiners in China are absorbing Iranian crude on a large scale, effectively serving as Iran's key funding lifeline, analysts say.
Recently, the United States ratcheted up sanctions to block crude exports, Iran's core funding source. The Treasury Department sanctioned more than 40 refiners and related shippers and vessels, including affiliates of Hengli Petrochemical, for purchasing billions of dollars' worth of Iranian oil. It also warned financial institutions that they could face sanctions if they support a transaction with Chinese refiners.
But observers say the impact is limited. The Wall Street Journal (WSJ) reported that "about 100 Chinese teapot refiners have built an independent ecosystem despite sanctions and regulations." These companies are absorbing most of the crude that Iran exports. The money flowing to Iran through this route is estimated at tens of billions of dollars a year. In effect, a "shadow oil network" that circumvents U.S. surveillance has taken shape.
Beijing is effectively turning a blind eye. The Ministry of Foreign Affairs said the U.S. unilateral sanctions "have no basis in international law" and vowed to protect its own corporations.
Officially, China's imports of Iranian crude are "zero (0)." Since 2023, Chinese customs has reported no such imports at all. But actual transactions are continuing covertly. Tankers are turning off their tracking systems and conducting ship‑to‑ship transfers on the high seas to disguise origin, making "shadow transactions" routine. Iran's front corporations and brokers are also stepping into the payment process to erase transaction traces.
Unlike state‑owned corporations, teapot refiners hold fewer overseas asset and can settle in yuan instead of dollars, so the damage is relatively limited even if they are cut off from the U.S. financial system. Thanks to this, China is securing Iranian crude stably while minimizing the burden of sanctions.
According to the WSJ, as of 2025, about 12% of China's crude imports are estimated to come from Iran. The related logistics network is also expanding rapidly. As of early this year, about 600 vessels are suspected of quietly moving Iranian crude, more than eight times the number at the end of 2020 (70 vessels).
Some analysts say the rise of teapot refiners is less a deliberate strategy than an "accidental outcome." In the past, Beijing sought to reorganize the refining industry around state‑owned corporations such as Sinopec and CNPC, but private refiners based in Shandong and elsewhere survived with government support and tax benefits. The market opened after some private refiners were allowed to import crude in 2015, and the decisive turning point came with the U.S. tightening of sanctions on Iran in 2018.
As state‑owned corporations shied away from transactions over sanction concerns, teapot refiners began snapping up discounted Iranian crude. As a result, China's imports of Iranian crude rose to about 1.4 million barrels a day, more than doubling. Hengli Petrochemical, which is under U.S. sanctions, also saw revenue more than triple since 2018, reaching about $30 billion (about 44 trillion won) last year.
In the industry, doubts are growing about the effectiveness of the sanctions. Emma, a researcher at ship‑tracking firm Vortexa, said, "As the sanctions market itself grows, corporations are starting to think 'sanctions are not as fatal as expected.'"
Experts say that under the current structure it is effectively impossible to completely block transactions in Iranian crude. They note that stopping it would require tougher steps such as large‑scale vessel seizures or strikes on energy infrastructure.