China’s small independent oil refineries, known as teapots, have been thriving by processing discounted Iranian crude despite U.S. sanctions. But if the United States lifts those sanctions, these teapots could face a crushing blow as cheap Iranian oil floods back into the global market.
For years, the United States has placed strong restrictions—called sanctions—on Iran’s oil industry. These were meant to stop Iran from selling its oil freely around the world. In 2018, then-President Donald Trump withdrew the U.S. from a nuclear deal with Iran and tightened these sanctions. This move caused Iran’s oil exports to drop drastically, from 2.8 million barrels a day to as low as 150,000 barrels a day in 2020.
Secret Exports and Growing Iranian Oil Supply
But Iran didn’t stop trying. It found secret ways to keep selling oil, including transferring it between ships at sea to hide where it was coming from. As a result, Iran has managed to increase exports again—up to around 1.65 million barrels a day in 2025.
A big part of this oil has gone to China, even though official records don’t show it. Most of it has been bought by the teapots. These refineries are located mainly in Shandong province and can handle around 4 million barrels a day in total. They don’t have huge facilities like the state-owned oil giants but have stayed alive by buying Iran’s heavily discounted oil.
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Now, with Donald Trump recently suggesting that a new nuclear deal with Iran may be close, the possibility of lifting sanctions is becoming very real. If that happens, Iran could return openly to the global oil market—and that would change everything for the teapots.
Teapots Face a Harsh Reality
The reason the teapot refineries have survived is simple: cheap oil. Sanctions meant that very few buyers were willing or able to purchase Iranian crude, so the teapots got it at a discount. They took a risk, and it paid off—until now.
If U.S. sanctions are lifted, Iranian oil would become available to everyone. Big global companies and state-owned Chinese refineries would likely start buying it too. That would mean higher prices, less access for the teapots, and much smaller profits—or no profit at all.
Many of these teapots already struggle. They usually run at about half of their full capacity because there are too many of them and not enough room in the market. They also face rules that stop them from exporting fuel, which makes it harder to grow. The cheap oil from Iran and Venezuela has been their only way to stay afloat.
Things have already started getting harder. In recent months, the U.S. introduced new sanctions that target specific teapot refineries and the ports they use in Shandong. Because of this, a lot of Iranian oil is now stuck at sea, sitting on ships that haven’t unloaded. In fact, this is the most Iranian oil seen in floating storage since late 2023. If the sanctions are removed, all that oil could quickly hit the market—but the teapots may not be the ones buying it.
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Wider Impact on Oil Prices and Big Refineries
Allowing Iran back into the global oil market wouldn’t just affect teapots. It would likely lower oil prices even more. Earlier this year, oil was priced at around $82 per barrel. Now, it’s down to about $65. Adding more oil from Iran would increase the global supply, which usually means even lower prices.
This could cause problems for other oil-producing countries, especially Saudi Arabia, which is already dealing with falling prices. But for large, state-owned refineries in China, this situation could be a chance to grow stronger. If the teapots are forced to scale back or shut down, the bigger refineries will be ready to take over the local supply.
So, while Donald Trump’s possible deal with Iran might open the door for a major shift in oil flows, it could also deliver a serious hit to one of the biggest users of Iranian oil in recent years—China’s teapot refineries. Their special role in the oil market may soon be a thing of the past.
