US sanctions on Iran test China's oil supply lines
China has been the largest purchaser of Iranian crude, but renewed US sanctions and a naval blockade have sharply cut those imports. The US Treasury has warned other nations to sever business ties with Iran or face exclusion from the dollar system. Analysts note Washington is cautious about provoking China, especially ahead of high-level talks.
Ship-tracking data shows Chinese imports of Iranian crude fell from roughly 1.5 million barrels daily in early spring to just over half a million by August, with the renewed US naval blockade in mid-July accelerating the decline. The disruption follows the collapse of a ceasefire deal between Washington and Tehran.
China's independent "teapot" refiners, serving domestic provincial markets, have long absorbed Iranian barrels at discounted prices while major state-owned firms avoided such purchases since 2019. These transactions are routinely disguised as Malaysian or Indonesian cargoes and settled in yuan through opaque intermediary chains, complicating US enforcement efforts.
The sanctions could strain US-China relations ahead of planned leadership talks, as Washington balances pressure on Tehran against the risk of Chinese retaliation on critical mineral exports. Chinese refiners may face supply disruptions, potentially affecting regional fuel prices. Other nations may also reassess their exposure to dollar-based systems versus trade ties with Beijing, with implications for global energy flows and financial architecture.