China buys 80% of Iran’s shipped oil: Why US sanctions could put Beijing in a bind    

US Treasury Secretary Scott Bessent said on August 20 that Washington would impose the “toughest sanctions in history” on Iran and would provide more details on August 24. He also urged Beijing to cooperate with Washington.

The pressure is already affecting the trade. Iranian oil available to Chinese buyers has fallen, some cargoes are being offered at higher prices and Chinese independent refineries are looking for alternative supplies.

Iranian oil supply to China is already falling

Chinese imports of Iranian oil fell to 785,000 barrels per day in June, their lowest level since February 2023, according to provisional Kpler data cited by Reuters.

Imports rose to an estimated 823,000 barrels per day in July but fell again to 534,000 barrels per day in August so far. That compares with China’s average Iranian oil purchases of about 1.4 million barrels per day in 2025, reported Reuters.

The supply squeeze has also changed the pricing of Iranian crude. Some Iranian barrels that normally trade at a discount were offered at premiums to ICE Brent futures, Reuters reported. One trading source put the premium at about $2 a barrel, compared with a discount of around $3 earlier in the week.

Iranian crude in floating storage outside the US blockade zone has fallen to about 80 million barrels, from roughly 105 million barrels before the blockade was reinstated.

Kpler estimated that around 40 million barrels remained on ships in Malaysian waters east of Singapore, much of which had already been committed to buyers.

The tighter supply is pushing Chinese refiners to look elsewhere. One Chinese teapot refinery bought Brazil’s Lapa crude, while others considered Iraq’s Basrah crude, Reuters reported.

“Given the thin Iranian availability amid the US blockade, Chinese teapots are now looking beyond Russia and Iran,” Sun Jianan, senior oil analyst at Energy Aspects, said, according to Reuters report.

Why are Chinese teapot refineries important?

China’s independent “teapot” refineries account for about a quarter of the country’s refinery capacity and have been important buyers of discounted Iranian crude.

Many have limited exposure to the US financial system, making them more willing to process sanctioned oil than larger Chinese refiners, according to sanctions experts cited by Reuters.

But their exposure is not zero. Washington can impose secondary sanctions on foreign companies that help sanctioned countries conduct business, potentially restricting their access to the US financial system and other parts of the American economy.

That makes the upcoming sanctions announcement important for Chinese refiners that continue buying Iranian crude.

What could new US sanctions target?

The exact targets of the next sanctions package will not be known until Bessent’s August 24 announcement. But Washington has already focused on Chinese companies involved in Iran’s oil trade.

In an April 28 alert, the US Treasury warned financial institutions about sanctions risks involving China-based teapot refineries, particularly those in Shandong province.

Treasury said China purchases about 90% of Iran’s oil exports and that teapot refineries account for most of those imports. It warned that some Chinese refineries had used the US financial system for dollar transactions and purchases of US goods.

The department also identified front companies, intermediary brokers and shadow-fleet shipping as methods used to evade sanctions.

In May, Treasury sanctioned 12 individuals and entities over their role in helping the Islamic Revolutionary Guard Corps sell and ship Iranian oil to China.

The US has therefore already established a sanctions framework around the China-Iran oil trade. The next package could expand the list of targeted companies, traders or financial channels.

Could Chinese banks face sanctions?

The possibility of sanctions against Chinese banks could have wider consequences because major financial institutions have greater exposure to the US financial system.

OFAC has already imposed secondary sanctions on smaller China- and Hong Kong-based entities accused of processing billions of dollars in Iranian oil transactions, Reuters reported.

The Treasury has also warned two larger Chinese banks that they could face secondary sanctions if Iranian funds are found moving through their systems, although the banks have not been publicly identified.

Sanctions against major Chinese banks could therefore affect transactions beyond the Iran oil trade. But such action could also provoke a stronger response from Beijing.

Could China retaliate?

China has rejected unilateral US sanctions and called for a political and diplomatic solution to the Iran conflict.

Beijing also has economic leverage of its own. China is a major supplier to the US and controls important parts of global supply chains for critical minerals used in advanced technology, Reuters reported.

That creates a wider risk for Washington. Tougher sanctions on Chinese companies or banks could add to US-China trade and strategic tensions.

What does this mean for China’s oil supply?

The immediate risk is not that Iranian oil will disappear from China’s market overnight. Instead, the data points to tighter supply, higher costs and a greater need for alternative crude, reported Reuters.

Chinese teapots are already looking at supplies from Brazil and Iraq as Iranian availability falls. If the squeeze continues, they could face higher crude costs or have to switch to grades that are less attractive than discounted Iranian oil.

The impact will depend on how much Iranian crude remains in floating storage, whether tankers can move through the blockade and how aggressively Washington enforces its new sanctions.

For China, the immediate challenge is finding enough alternative crude without significantly increasing refining costs. For Washington, the challenge is whether tougher sanctions can disrupt Iran’s oil revenue without triggering a broader confrontation with Beijing.

Iran has operated under sanctions for years and has developed networks to keep its oil trade moving. Brett Erickson of Obsidian Risk Advisors described the repeated targeting of replacement entities as a “whack-a-mole” approach, according to Reuters report.