Impact of the Iran-Israel Conflict on China's Teapot Refineries

The ongoing conflict between the United States and Israel against Iran has significantly impacted global oil markets, particularly affecting China's independent "teapot" refineries in Shandong province. These smaller refineries, which account for approximately 25% of China's total refining capacity, are crucial for the country's energy security, especially as they continue to import Iranian crude oil amidst rising global prices and geopolitical tensions.

The Guardian

Following the US-Israel strikes on Iran on February 28, 2026, Iranian oil exports have remained steady, with China importing around 1.6 million barrels of Iranian crude daily, an increase from 1.4 million barrels in 2025. Muyu Xu, a senior crude oil analyst at Kpler, noted that there has been no disruption to Iranian oil flows, primarily due to the willingness of Shandong's teapot refineries to purchase Iranian crude despite US sanctions. In contrast, state-owned Chinese refiners are more cautious due to their reliance on the US dollar-based financial system.

The Guardian

The teapot refineries, which operate on thin profit margins, are now facing increased costs for crude oil. Before the conflict, Iranian light crude was approximately $11 cheaper per barrel than Brent crude; however, this discount has narrowed to about $2 per barrel as Brent prices have surged. Uncle Wang, a petrol station owner in Weifang, expressed concern over the rising prices, stating that while local supplies remain stable, his profits have dwindled to "almost zero."

The Guardian

Workers at these refineries are also feeling the economic strain. A production line worker at Luqing Petrochemical reported a decrease in orders and anticipated a drop in his monthly salary due to reduced earnings. The company, which employs over 2,700 people, has begun pressuring employees to resign by cutting salaries and relocating them to less favorable work sites.

The Guardian

In response to the rising fuel prices, the Chinese government intervened to reduce a planned increase in petrol and diesel prices by approximately 50%. However, the long-term viability of the teapot refineries remains uncertain. If oil prices continue to rise, some refineries may face bankruptcy, exacerbating the economic challenges for their employees.

The Guardian

Uncle Wang highlighted a domestic concern that could overshadow the immediate effects of the war: the increasing prevalence of electric vehicles. He noted that while the war poses short-term challenges, the shift towards electric mobility represents a more significant threat to traditional petrol businesses.

The Guardian

• “We are not seeing any disruption to Iranian oil flows.” — Muyu Xu, Senior Crude Oil Analyst, Kpler

The Guardian

• “It’s not that [other countries] can’t get oil, it’s that they are too scared to buy it because [Donald] Trump won’t let them. But China isn’t afraid of him,” — Uncle Wang, Petrol Station Owner

The Guardian

• “Before the war, profits were OK.” — Anonymous Worker, Luqing Petrochemical

The Guardian

The Iran-Israel conflict has created a complex landscape for China's teapot refineries, which are navigating rising crude oil prices and economic pressures. While these refineries play a vital role in China's energy security, their future remains precarious amid shifting market dynamics and evolving energy trends.

The Guardian