China slashes Iranian oil purchases 40% as US sanctions bite

China has reduced its crude purchases by about 40 percent over the past few months, directly pressuring Iran's oil-dependent economy as U.S. sanctions on Chinese teapot refineries take effect.

"We have sanctioned Chinese ... so-called teapot refineries, which are the private refineries, and we've seen a substantial decrease in their purchases of Iranian oil," Scott Bessent, U.S. Treasury Secretary, said in an interview with Fox Business Network on Tuesday.

Bessent attributed the decline to two factors: the newly imposed sanctions targeting China's private refining sector and Beijing's reliance on its strategic petroleum reserve, which has reduced the need for spot-market crude imports. The 40 percent drop in Chinese buying represents a significant blow to Iran's oil revenue, which has long relied on Chinese buyers as a key outlet for its crude exports.

The enforcement push marks an escalation in Washington's campaign to choke off Tehran's primary revenue source. Iran depends on oil exports for roughly 60 percent of its government revenue, and the loss of Chinese demand — which accounted for an estimated 90 percent of Iranian crude exports — could deepen the regime's fiscal strain.

The sanctions specifically target China's independent teapot refineries, which have served as the primary buyers of sanctioned Iranian crude. These smaller processors, concentrated in China's Shandong province, have historically operated outside the scrutiny faced by state-owned oil majors, making them a critical channel for Iranian oil to reach global markets.

Iran's Oil Exports Under Pressure

Iran's crude exports had already fallen sharply in recent months amid broader U.S. enforcement. The latest round of sanctions, which the Treasury Department expanded in mid-July to include entities in Iran's oil and cryptocurrency sectors, has tightened the noose further. China's overall crude imports have also softened as the world's largest importer draws down its strategic petroleum reserve, which Bessent noted has reduced Beijing's appetite for spot purchases.

The 40 percent decline in Chinese buying is likely to compound supply tightness in global oil markets. Brent crude has held near recent highs as Middle East tensions — including direct U.S. military strikes on Iranian targets over the past 10 days — have added a risk premium of several dollars per barrel. Any sustained reduction in Iranian supply, which averaged roughly 1.5 million barrels per day before the latest sanctions push, could push prices higher.

What Comes Next

The Bessent administration's strategy mirrors the maximum pressure approach of the first Trump term, which drove Iranian oil exports below 500,000 barrels per day by late 2019. The key difference this time is the explicit targeting of Chinese financial intermediaries and refineries, a move that could test the limits of U.S. extraterritorial enforcement. China has yet to issue an official response to Bessent's remarks, though Beijing has previously criticized U.S. sanctions on its companies as a violation of international trade norms.

For Iran, the revenue loss comes at a particularly vulnerable moment. The regime is already grappling with the economic toll of ongoing U.S. military strikes and domestic inflation that has eroded purchasing power. If Chinese purchases remain at reduced levels, Iran may be forced to offer steeper discounts to other buyers or accept a prolonged period of diminished export revenue.

This article is for informational purposes only and does not constitute investment advice.