The Dance of Oil: China, Iran, and the Strait of Hormuz
June 27, 2025, 4:47 pm
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In the world of oil, the stakes are high and the players are many. China and Iran are two key figures in this intricate dance, each with their own motivations and strategies. As tensions rise and sanctions loom, the relationship between these two nations is a complex web of necessity and opportunism.
China has become the lifeblood of Iran’s oil exports. The independent refineries, often called “teapots,” are the primary buyers of Iranian crude. They thrive on discounted oil, a tempting offer in a market where prices fluctuate like a pendulum. Despite U.S. sanctions, these teapots have found ways to keep the flow of oil steady. They operate in the shadows, using a network of transshipment and a payment system that sidesteps the U.S. dollar.
Ship tracking data reveals a striking trend. In 2024, China’s imports of Iranian crude nearly doubled to 17.8 million barrels per day. This year, the pace has remained robust, with 6.8 million barrels per day flowing in the first five months. The U.S. Energy Information Administration estimates that nearly 90% of Iran’s crude exports end up in China. The sanctions imposed by the U.S. have barely scratched the surface of this trade.
Iran’s oil is often sold at a discount, making it an attractive option for buyers. The price difference can be significant, with Iranian Light oil trading $6 to $7 cheaper than its non-sanctioned counterparts. This price advantage draws buyers like moths to a flame. The teapots, while smaller and less influential than state-owned firms, have become the backbone of this trade.
However, the journey of Iranian oil to China is anything but straightforward. Many shipments undergo multiple transfers, often in the Middle East Gulf or the Strait of Malacca. This process obscures the origin of the oil, making it difficult to trace. Tankers engage in “spoofing,” broadcasting false information about their routes to evade detection. It’s a game of cat and mouse, where the stakes are enormous.
Payments for these transactions are typically made in renminbi, further insulating Chinese buyers from U.S. sanctions. The absence of dollar exposure means that being excluded from the SWIFT payment system doesn’t pose a significant threat to the flow of oil. This clever maneuvering allows the trade to continue, even as tensions simmer.
But the dance is not without its risks. Iran’s parliament has recently threatened to close the Strait of Hormuz, a critical chokepoint for global oil transport. This move could alienate Tehran’s neighbors and disrupt the very markets that sustain its economy. Experts suggest that the likelihood of a closure is minimal. Iran has much to lose, particularly its relationship with China, which relies heavily on oil from the Gulf.
Closing the strait would provoke not only regional adversaries but also disrupt the flow of oil to China. Iran shipped 1.5 million barrels per day through this vital waterway in early 2025. Disrupting this flow would be akin to cutting off one’s nose to spite one’s face. The repercussions would ripple through global markets, raising energy prices and heightening geopolitical tensions.
The Strait of Hormuz is the world’s most important oil transit chokepoint, with about 20% of the world’s oil passing through its waters. Any disruption could send shockwaves through the global economy. Analysts warn that Iran’s best strategy would be to rattle the oil flows just enough to create upward price pressure without provoking a major U.S. response.
The potential for conflict looms large. Should Iran decide to act on its threats, it could use small boats for a partial blockade or even mine the waterway. Such actions would not only impact Iran’s exports but also those of neighboring Gulf nations. The Commonwealth Bank of Australia highlights the limited capacity of alternative supply routes, emphasizing the strait’s critical role in global energy transport.
The consequences of a closure would be dire. Goldman Sachs estimates that a significant drop in oil flows could lead to a spike in prices, with Brent crude potentially reaching $110 per barrel. The market is already pricing in a geopolitical risk premium, reflecting the uncertainty that hangs over the region.
As the U.S. continues to impose sanctions, Iran’s oil owners and shipping operators are likely to take further steps to complicate the supply chain. The dance of oil is fraught with challenges, but for now, the flow continues. China remains the largest consumer of Iranian crude, and the teapots are poised to keep the trade alive.
In this high-stakes game, the players must navigate a labyrinth of sanctions, geopolitical tensions, and market dynamics. The relationship between China and Iran is a delicate balance, one that could tip at any moment. As the world watches, the dance of oil continues, a testament to the complexities of global trade and the relentless pursuit of energy security.
China has become the lifeblood of Iran’s oil exports. The independent refineries, often called “teapots,” are the primary buyers of Iranian crude. They thrive on discounted oil, a tempting offer in a market where prices fluctuate like a pendulum. Despite U.S. sanctions, these teapots have found ways to keep the flow of oil steady. They operate in the shadows, using a network of transshipment and a payment system that sidesteps the U.S. dollar.
Ship tracking data reveals a striking trend. In 2024, China’s imports of Iranian crude nearly doubled to 17.8 million barrels per day. This year, the pace has remained robust, with 6.8 million barrels per day flowing in the first five months. The U.S. Energy Information Administration estimates that nearly 90% of Iran’s crude exports end up in China. The sanctions imposed by the U.S. have barely scratched the surface of this trade.
Iran’s oil is often sold at a discount, making it an attractive option for buyers. The price difference can be significant, with Iranian Light oil trading $6 to $7 cheaper than its non-sanctioned counterparts. This price advantage draws buyers like moths to a flame. The teapots, while smaller and less influential than state-owned firms, have become the backbone of this trade.
However, the journey of Iranian oil to China is anything but straightforward. Many shipments undergo multiple transfers, often in the Middle East Gulf or the Strait of Malacca. This process obscures the origin of the oil, making it difficult to trace. Tankers engage in “spoofing,” broadcasting false information about their routes to evade detection. It’s a game of cat and mouse, where the stakes are enormous.
Payments for these transactions are typically made in renminbi, further insulating Chinese buyers from U.S. sanctions. The absence of dollar exposure means that being excluded from the SWIFT payment system doesn’t pose a significant threat to the flow of oil. This clever maneuvering allows the trade to continue, even as tensions simmer.
But the dance is not without its risks. Iran’s parliament has recently threatened to close the Strait of Hormuz, a critical chokepoint for global oil transport. This move could alienate Tehran’s neighbors and disrupt the very markets that sustain its economy. Experts suggest that the likelihood of a closure is minimal. Iran has much to lose, particularly its relationship with China, which relies heavily on oil from the Gulf.
Closing the strait would provoke not only regional adversaries but also disrupt the flow of oil to China. Iran shipped 1.5 million barrels per day through this vital waterway in early 2025. Disrupting this flow would be akin to cutting off one’s nose to spite one’s face. The repercussions would ripple through global markets, raising energy prices and heightening geopolitical tensions.
The Strait of Hormuz is the world’s most important oil transit chokepoint, with about 20% of the world’s oil passing through its waters. Any disruption could send shockwaves through the global economy. Analysts warn that Iran’s best strategy would be to rattle the oil flows just enough to create upward price pressure without provoking a major U.S. response.
The potential for conflict looms large. Should Iran decide to act on its threats, it could use small boats for a partial blockade or even mine the waterway. Such actions would not only impact Iran’s exports but also those of neighboring Gulf nations. The Commonwealth Bank of Australia highlights the limited capacity of alternative supply routes, emphasizing the strait’s critical role in global energy transport.
The consequences of a closure would be dire. Goldman Sachs estimates that a significant drop in oil flows could lead to a spike in prices, with Brent crude potentially reaching $110 per barrel. The market is already pricing in a geopolitical risk premium, reflecting the uncertainty that hangs over the region.
As the U.S. continues to impose sanctions, Iran’s oil owners and shipping operators are likely to take further steps to complicate the supply chain. The dance of oil is fraught with challenges, but for now, the flow continues. China remains the largest consumer of Iranian crude, and the teapots are poised to keep the trade alive.
In this high-stakes game, the players must navigate a labyrinth of sanctions, geopolitical tensions, and market dynamics. The relationship between China and Iran is a delicate balance, one that could tip at any moment. As the world watches, the dance of oil continues, a testament to the complexities of global trade and the relentless pursuit of energy security.