The Impact of the Iran Conflict on Global Oil Markets
The ongoing conflict between the United States and Iran has significantly disrupted global oil and gas markets, with the closure of the Strait of Hormuz exacerbating supply chain tensions. This narrow waterway, through which approximately 20 percent of the world’s oil and gas passes, has been blocked by Iranian forces since the war began on February 28. The disruption has led to a sharp rise in oil prices, with Brent crude surging to $106.16 per barrel on Thursday, a 5 percent increase from the previous day. Earlier in the week, prices had already exceeded $116 per barrel, reflecting the severe strain on global energy markets.
Countries around the world are now scrambling to mitigate the effects of this crisis, with many tapping into strategic oil reserves to stabilize their economies. However, China has managed to insulate itself to a large extent, despite its heavy reliance on Iranian oil. This resilience is attributed to a combination of proactive planning and strategic diversification of energy sources. Analysts note that China’s ability to maintain stable oil supplies has been critical in avoiding the worst impacts of the crisis, even as global prices soar.
The conflict has also highlighted the vulnerability of the global energy infrastructure, with geopolitical tensions threatening to disrupt supply chains at a time when demand remains high. The United States and its allies have intensified military operations against Iran, further complicating efforts to restore normalcy to the oil market. As the situation continues to unfold, the long-term implications for energy security and global economic stability remain uncertain.
China’s Strategic Oil Imports and Teapot Refineries
China’s ability to navigate the crisis has been bolstered by its reliance on “teapot refineries”—small, independent oil processing facilities that have played a crucial role in securing discounted Iranian and Russian crude. These refineries, primarily located in China’s Shandong province, operate on narrow profit margins but have been instrumental in bypassing U.S. sanctions and maintaining a steady supply of oil. According to data from Kpler, China imported over 1.4 million barrels per day of Iranian crude in 2025, accounting for more than 80 percent of Iran’s total seaborne oil exports.
The use of teapot refineries has allowed China to circumvent international sanctions while maintaining access to discounted oil supplies. This strategy has been particularly effective in the face of U.S. efforts to disrupt Iran’s oil exports. However, analysts warn that these refineries are not a permanent solution. As oil prices rise and sanctions tighten, the narrow margins of these facilities may become unsustainable, forcing them to reduce operations or halt imports altogether. Muyu Xu, a senior crude oil analyst at Kpler, noted that while teapot refineries have provided a buffer, they cannot fully compensate for the loss of non-Iranian supplies from the Middle East.
Despite their role in the current crisis, teapot refineries are not without limitations. State-owned refiners remain cautious about compliance risks and operational challenges, while private operators are hesitant to increase purchases due to high costs. The U.S. has also targeted some of these refineries, such as the Hebei Xinhai Chemical Group refinery in Shandong, for importing Iranian oil. These actions underscore the geopolitical tensions surrounding China’s energy strategy and the broader implications for global oil markets.
China’s Diversification and Contingency Measures
To further secure its energy supply, China has diversified its oil imports by increasing purchases from Russia and Venezuela, while also stockpiling strategic reserves. The country’s strategic petroleum reserves, which have grown to approximately 1.2 billion barrels by early 2026, provide a critical buffer against supply shocks. These reserves, built at well below market cost, have allowed China to maintain energy security even as global prices soar. According to a report by the U.S. House Select Committee, China’s ability to stockpile oil from sanctioned producers like Russia and Iran has been a key factor in its resilience.
China has also leveraged shadow fleets—networks of older, uninsured tankers that operate under false flags—to transport oil from sanctioned countries. These fleets have enabled Chinese companies to acquire discounted crude while avoiding detection by sanctions enforcement mechanisms. However, experts warn that this approach is temporary. As the war continues, the availability of low-cost crude is diminishing, and replacement costs are rising, putting pressure on both teapot refineries and state-owned enterprises. The reliance on shadow fleets also raises concerns about the long-term sustainability of this strategy.
In addition to stockpiling and shadow fleets, China has expanded its reliance on Russian oil, with shipments to the country rising by 40.9 percent in the first two months of 2026. The country has also increased pipeline imports from Russia, further diversifying its energy sources. However, these measures come with risks, including the potential for geopolitical retaliation and the need to balance short-term gains with long-term stability. As the conflict in the Middle East persists, China’s ability to maintain its energy security will depend on its capacity to adapt to evolving challenges and constraints.
Conclusion
To further secure its energy supply, China has diversified its oil imports by increasing purchases from Russia and Venezuela, while also stockpiling strategic reserves. The country’s strategic petroleum reserves, which have grown to approximately 1.2 billion barrels by early 2026, provide a critical buffer against supply shocks. These reserves, built at well below market cost, have allowed China to maintain energy security even as global prices soar. According to a report by the U.S. House Select Committee, China’s ability to stockpile oil from sanctioned producers like Russia and Iran has been a key factor in its resilience.
China has also leveraged shadow fleets—networks of older, uninsured tankers that operate under false flags—to transport oil from sanctioned countries. These fleets have enabled Chinese companies to acquire discounted crude while avoiding detection by sanctions enforcement mechanisms. However, experts warn that this approach is temporary. As the war continues, the availability of low-cost crude is diminishing, and replacement costs are rising, putting pressure on both teapot refineries and state-owned enterprises. The reliance on shadow fleets also raises concerns about the long-term sustainability of this strategy.
In addition to stockpiling and shadow fleets, China has expanded its reliance on Russian oil, with shipments to the country rising by 40.9 percent in the first two months of 2026. The country has also increased pipeline imports from Russia, further diversifying its energy sources. However, these measures come with risks, including the potential for geopolitical retaliation and the need to balance short-term gains with long-term stability. As the conflict in the Middle East persists, China’s ability to maintain its energy security will depend on its capacity to adapt to evolving challenges and constraints.
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