Close to ten Chinese teapot refineries sent traders to APPEC in Singapore last week in search of crude, as the supply route that had underpinned their businesses came under pressure.
Those refiners are now buying Iraqi oil to replace Iranian supplies cut off by a US blockade. Private processors, including smaller operators in Shandong province, bought Iraq’s Basrah Heavy and Basrah Medium for November delivery at premiums reaching $18 per barrel above ICE Brent.
The scramble follows a sharp reversal for refiners that had relied on Iran for cheap crude. Iran supplied over 1 million barrels per day to China’s independent refiners before the blockade. S&P estimated that teapots imported 97.8% of their crude from sanctioned sources, mostly Iran, for January to August 2024.
Private processors had been the main buyers of Iranian barrels because steep discounts on sanctioned cargoes improved refining margins. Some teapot refineries operated exclusively on sanctioned crude, with the sanctions discount forming their business model.
The Trump administration renewed its maximum-pressure campaign in February 2025. Its sanctions then targeted vessels, intermediaries, Chinese independent refiners and terminals involved in Iranian oil flows.
The US began a naval blockade of Iranian ports on 13 April. An easing later allowed some Iranian barrels to move again, before restrictions on Iranian exports returned in July. Vortexa data shows the blockade has effectively halted Iranian crude exports since mid-July, while Iranian crude loadings fell to around 210kbd in August, their lowest level since 2020.
At least 50 tankers, carrying mainly Iranian crude, remain stranded along China’s coast. Iranian crude has moved to a premium to Brent, reversing its traditional discounted position.
Russian supply has offered limited relief. State-owned Chinese refiners are securing most available Russian crude, raising costs for independent processors. ESPO, the Russian grade from the Far East that independents typically favour for its diesel-rich yield, is trading at a premium of almost $30 per barrel above Brent.
The shortage has also pushed some processors towards sulfur-rich Basrah crude, a grade they would usually avoid in favour of cheaper Iranian oil and ESPO. Chinese independents bought more than 20 million barrels of West African, Canadian and Colombian crude in the weeks before 10 September.
Some Shandong teapot refineries could deplete their inventories by the end of this month. Muyu Xu, senior crude analyst at Kpler, said: “To avoid shutting down or significantly cutting run rates, refiners need to secure alternative supplies as soon as possible”.
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