China's Most Painful "Iran Oil Shock": The Fragility of Discounted Oil and Sanction Evasion

1. Why is China the "Most Exposed Country"?

In the global crude oil market, Iranian oil holds a special position. When considering production volume and diversity of export destinations, Iran is not necessarily the "largest supplier." However, due to sanctions narrowing legitimate sales channels, the buyers become limited, and purchasers are compelled to buy for "certain reasons."

That "certain reason" is the "discount." Crude oil priced several dollars to ten dollars cheaper than international benchmarks is almost a lifeline for the refining business, which operates on thin margins. China, particularly its independent refineries, has been most deeply dependent on this discounted crude.

2. The Main Players are Not State-Owned Enterprises, but "Teapots"

When it comes to China's crude oil imports, the image of large state-owned oil companies leading the way is strong. However, the situation is different regarding Iranian oil. While state-owned enterprises distance themselves to avoid high-risk transactions, small to medium-sized independent refineries, known as teapots, mainly in Shandong Province, have been attracted by the allure of discounts.

They survive on a model of securing product margins by purchasing cheaply. In other words, if Iranian oil stops, it's not just that "procurement costs rise," but there's a possibility that "the very premise of profitability collapses." The structural pain point lies here, more than in the absolute value of import volumes.

3. The "Three Routes" of Supply Disruption

There are three main triggers for the destabilization of Iranian oil.

(1) Geopolitical Risk: Disruption of Maritime Chokepoints
When tensions rise in the Middle East, the transit risk of the Strait of Hormuz increases dramatically. Regardless of whether there is a blockade, logistics costs skyrocket due to insurance premiums, freight rates, detours, and securing ship space. Crude oil is "cargo of the sea," and maritime insecurity is immediately reflected in prices.

(2) Sanction Risk: Tightening of Networks
To evade sanctions, Iranian oil tends to rely on complex networks, including transshipment, changing the country of origin on documents, and anonymizing intermediaries and vessels. Even if transportation itself does not stop, stricter enforcement can lead to "increased transaction costs," "payment delays," and "inability to dispatch ships," thus thinning the flow.

(3) Demand-Side Risk: Deterioration of Profitability in China
Interestingly, the flow can weaken not only due to supply issues but also due to circumstances on the Chinese side. If the margins of independent refineries shrink, they will reduce their procurement. As a result, Iranian offshore storage accumulates, making price negotiations even more unstable. A supply network cannot be sustained by one side alone.

4. Alternative Procurement is Possible, but "Cheapness" Cannot Be Replaced

The argument that "China is one of the world's largest buyers, so it can buy from elsewhere" sounds plausible. Indeed, there are options such as Russia, other Middle Eastern countries, Africa, and South America. There are also strategic reserves. It does not necessarily lead directly to a "physical shortage" in the short term.

However, the problem is whether it can be replaced with the same quality, conditions, and price. The appeal of Iranian oil is its price, and if the discount disappears, the break-even point for independent refineries becomes even more challenging. The potential consequences include reduced operating rates, product inventory adjustments, increased domestic fuel prices, and further impacts on logistics costs and prices.

In other words, the essence of supply disruption lies not in "the absence of crude oil" but in "the absence of cheap crude oil."

5. China's Remaining "Maritime Dilemma"

China's energy security has long been discussed alongside the vulnerability of maritime transport. The structure of not only Middle East dependence but also concentration of transport routes in specific narrow sea areas is efficient in peacetime but becomes a critical point in times of crisis.

What makes Iranian oil symbolic here is that the transactions bundle "discounts" with "risks." Behind the discounts are hidden costs such as sanctions, maritime transport, name changes, and settlements, which can be absorbed in peacetime but surface the moment the situation becomes unstable.

6. The Impact Does Not End with China

If Iranian oil is blocked, the overall supply-demand of "discounted crude oil" in the world changes. If China's independents shift en masse to heavy oil from other countries, the discount there shrinks, and prices spread to other buyers.

Furthermore, if insurance, shipping companies, and financial institutions become cautious, freight rates can rise even for cargo not subject to sanctions. The energy market fluctuates not only on supply volume but also on "whether it can pass," "whether it can be paid for," and "whether it can be transported."

7. The "Realistic Scenario" That Will Happen

The most realistic scenario is not a complete halt but "intermittent thinning."

For example, additional sanctions may render specific ships and intermediaries unusable, stricter port checks may increase ship delays, and higher insurance premiums may make some routes unprofitable. As these small blockages accumulate, independent refineries will diversify their procurement sources, lower operating rates, and attempt to pass on product prices.

This chain reaction is not flashy but gradually effective. The pain is greater for systems that have been running on discounts the moment those discounts disappear.

SNS Reactions (Summary of Trends)

*Based on related posts and headline sharing spread on major SNS (such as X), the "trends" of the arguments are organized.*

1. "Iran Will Be Stuck If It Doesn't Sell to China / China Only Buys While It's Cheap" Type
   Posts highlighting the point that Iran's sales channels are skewed towards China, viewing it as "a transaction rather than friendship," are prominent. Posts pointing out the asymmetry that China can find alternatives but Iran cannot are spreading.

2. "Teapots at the Forefront" Type
   Focusing on the point that independents, not state-owned enterprises, are handling the actual work, with the view that "end players" are more likely to be targeted by sanctions. There are many discussions that the thinner the profit margins, the greater the backlash from discount dependence.

3. "Criticism of Sanction Evasion (Shadow Fleet and Origin Laundering)" Type
   Concerns about the renaming of crude oil and transportation networks, with cautionary arguments that "if the crackdown intensifies, logistics costs will rise."

4. "U.S. Pressure Spreads Through Energy Prices Globally" Type
   The point that political decisions by specific countries can become a factor of global inflation through insurance, freight rates, and market psychology.

5. (As a point often seen in Chinese-speaking regions) "Rebellion Against Unilateral Sanctions" Type
   Comments emphasizing sovereignty and freedom of trade regarding the legitimacy of sanctions tend to be attached, while realistically, there is also a tone of concern about "the pain of disappearing cheapness."
   
   
   

Fact Note (Sources)

• The point that China buys most of Iran's export crude, averaging about 1.38 million barrels/day in 2025, and accounts for just over 10% of China's maritime imports.

• The point that the main buyers are China's independent refineries (teapots), and Iranian oil is significantly discounted compared to other non-sanctioned crude.

• The point that methods such as reassigning the origin to Malaysia, etc., are pointed out as sanction evasion.

• The point that U.S. sanction strengthening could also affect China's teapots (cases of sanction targeting have been reported).

• The point that China's "discounted crude oil" procurement risk is being recognized due to factors like Venezuela, and Iranian and Russian heavy oil are discussed as alternatives.

• The point that posts organizing the relationship between Iran and China as a "transaction over cheap crude oil" and emphasizing teapot dependence are spreading on X (example).
  
  
  

Reference URL

• https://www.reuters.com/business/energy/chinas-heavy-reliance-iranian-oil-imports-2026-01-13/

• https://www.reuters.com/business/energy/chinese-refiners-expected-replace-venezuelan-oil-with-iranian-crude-traders-say-2026-01-07/

• https://www.ft.com/content/f64826fa-5c36-4fb3-8621-ee0b9d9a1ff5