- China's teapot refineries buy heavily sanctioned, discounted oil from Iran and others
- China built a 1.2 billion barrel strategic reserve by early 2026 at below market cost
- Teapot refineries handle 25% of China's oil processing but operate on thin profit margins
Iran's blockade of the Strait of Hormuz, through which about 20% of global oil and gas passes, has upended global energy markets since the US-Israel war on Iran began on February 28. Countries across Asia are scrambling to make deals with Iran for safe passage. Malaysia ordered civil servants to work from home to conserve fuel. Oil prices have surged well above $100 a barrel.
But China, which gets more than half its oil from the Middle East and bought over 80% of Iran's exported oil last year, appears remarkably insulated. The reason goes back years to a quiet but deliberate strategy built around a peculiar set of small factories, according to reports.
What Are 'Teapot' Refineries?
Teapot refineries are small, privately owned oil facilities primarily based in China's Shandong province, named after their compact, teapot-like shape. They account for one quarter of China's total oil processing capacity but operate on very thin profit margins, making them sensitive to price swings.
Their real value has been their willingness to do what big state-owned Chinese companies cannot, buy heavily sanctioned, deeply discounted oil from Iran, Russia, and Venezuela, and quietly stockpile it for a rainy day.
How Much Oil Did China Store Up?
Quite a lot. China assembled a strategic petroleum reserve of roughly 1.2 billion barrels by early 2026, equal to approximately 109 days of seaborne import cover, bought at well below market cost from the very barrels Western sanctions were designed to strand. A Shandong teapot executive told Reuters: "We built some inventories earlier, so the pressure is not that big for the near term."
Will This Last?
Not indefinitely. Muyu Xu, a senior crude oil analyst at Kpler, told Al Jazeera that the cushion is already thinning. "China's seaborne crude imports in March stood at 10.19 million barrels per day, down from 11.51 million in February," she said, warning that most March arrivals were loaded before the war began and that China is expected to see a sharp decline in April arrivals.
Xu also told Al Jazeera that teapot refiners are now "holding back from new purchases due to high prices and thin margins."
When oil gets expensive, these small refineries simply cannot afford to keep buying. In the first two months of 2026, Russia's crude shipments to China rose 40.9%, a sign Beijing is leaning hard on its remaining alternatives.
China's energy strategy has bought it time. But with the war showing no sign of ending, even its carefully built buffers are beginning to run thin.
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