How China's Teapot Refineries Are Managing the Hormuz Oil Crisis

China's independent "teapot" refineries—the small, privately owned oil processors concentrated in Shandong province—have long been the primary buyers of Iranian crude, accounting for roughly 90% of Iran's total oil exports to China . But the 2026 Strait of Hormuz crisis and escalating U.S. sanctions have forced a dramatic pivot. As of mid-July 2026, crude storage utilization at Shandong's teapots stood at just 41.6%, down 0.3 percentage points week-on-week, as refiners burned through stockpiles at an unprecedented rate . This article examines the current state of teapot inventories, the shifting dynamics of Iranian crude purchases, China's import trends through July 2026, and the status of Strait of Hormuz traffic and its impact on Middle Eastern flows to China.

Shandong Teapot Inventories: Drawing Down Fast

Crude storage utilization at Shandong's independent refineries was 41.6% as of July 15, 2026, according to Mysteel survey data . This relatively low level reflects a broader trend of inventory draws: Chinese refiners have been systematically drawing on commercial stockpiles rather than importing new barrels. In June 2026, the implied inventory draw was nearly 1 million barrels per day (bpd), with commercial stocks last peaking around 1.25 billion barrels in early May before being tapped to substitute for lost Hormuz supply .

Gasoline and diesel inventories in Shandong were also falling rapidly through June after hefty refinery run cuts, as domestic demand remained soft but product draws accelerated . Several Shandong-based teapots have indicated they are prepared to reduce or suspend processing after running down the crude stocks built in March and April .

China does not publish official crude inventory statistics. All volume estimates—from the IEA, Kpler, and EIA—are derived from the mathematical difference between reported customs import volumes and estimated refinery throughput rates .

Teapots, Iranian Crude, and U.S. Sanctions: A Fractured Relationship

Teapot refineries in Shandong have historically been the primary buyers of Iranian crude, with China purchasing approximately 90% of Iran's total oil exports . However, the dynamics have shifted sharply in recent months due to three converging forces: the war-related disruption of Strait of Hormuz flows, intensified U.S. sanctions enforcement, and the availability of cheaper alternative Middle Eastern grades.

Massive Pivot to Non-Iranian Middle Eastern Crude

In recent weeks, Shandong teapots bought 16 million to 20.5 million barrels of crude from Qatar, Iraq, and the United Arab Emirates—their largest purchases of non-sanctioned Middle Eastern oil since the Iran conflict began . A private mega-refiner (Shenghong Petrochemical) also purchased roughly 12 million barrels of Iraqi, Abu Dhabi, and Saudi crude for July arrival after Gulf producers lowered prices . An additional ~20 million barrels of Middle Eastern crude was bought for July–August loading, with some teapots even looking to resell cargoes for profit .

Iranian Oil Stuck at Sea

As Chinese teapots turned to rival Middle East suppliers, Iranian oil inventories floating at sea surged. Between June 15 and July 6, about 30 million barrels of Iranian oil were loaded, according to tanker tracker Vortexa Analytics . Kpler recorded an estimated 34.5 million barrels of Iranian crude transiting the Strait of Hormuz on 21 tankers from just one loading terminal . As of late April, Iranian oil in transit outside the Persian Gulf stood at around 165 million barrels, equivalent to about four months' worth of China's normal Iranian imports .

U.S. Sanctions Escalation

OFAC has designated at least five Chinese teapot refineries (including Hengli Petrochemical, Shandong Shouguang Luqing, and Shandong Shengxing) since April 2025, and in April 2026 issued a formal advisory warning financial institutions about sanctions risks from dealing with these refineries . China responded by invoking its anti-sanctions blocking rules for the first time, announcing an injunction to block the enforcement of U.S. sanctions against the five named refineries S.

Renewed Iranian Purchases?

As of late July 2026, some teapots were beginning to "eye Iranian oil" again for September delivery, but the return of U.S. "maximum pressure" sanctions after the ceasefire breakdown makes fresh Iranian purchases highly risky . Iranian floating storage remains enormous, and the cheaper rival Middle Eastern grades that became available during the brief reopening of Hormuz have since become scarcer again.

China's Crude Import Trends: July 2026 vs. Prior Months

China's crude imports rebounded in July 2026 from June's near-decade low, driven by the brief reopening of the Strait of Hormuz and increased purchases from Russia and other non-Middle East sources.

Month	Total Imports (MMT)	bpd Equivalent	YoY Change	Notes
May 2026	~32.8 MMT (est.)	~7.9M bpd	-29%	Already deeply depressed
June 2026	29.27 MMT	7.12M bpd	-41.3%	Lowest since Oct 2016; near 10-year low
July 2026	35.73 MMT	~8.41M bpd	-24.3%	3-month high; up 22% m/m but still well below normal

Key details:

• July imports of 35.73 million metric tons (8.41 million bpd) were the highest in three months but still 24.3% below July 2025 .
• The June–July average of ~7.78 million bpd is roughly 4.21 million bpd below the pre-war 2025 monthly average of ~12 million bpd .
• Kpler data shows China's seaborne imports recovered to 6.94 million bpd in July from 5.99 million bpd in June .
• The recovery was driven by cheaper Middle Eastern barrels bought when Hormuz briefly reopened in June, plus increased Russian ESPO crude purchases. Sinopec alone booked 30–40 ESPO cargoes for July–September delivery, equivalent to ~241,000–320,000 bpd .
• China's imports from the Middle East in July were estimated by Kpler at 2.71 million bpd .

China's overall crude imports fell 32% in Q2 2026 compared to Q1, averaging just 8.1 million bpd, according to the U.S. Energy Information Administration .

Strait of Hormuz: From Closure to Limited Function

The Strait of Hormuz remains the dominant disruption factor for China's crude supply chain. Here is a timeline of key developments:

• Initial closure (Feb 28 – Apr 7, 2026): Days after U.S.-Israeli attacks on Iran began, Iranian forces declared the Strait closed. Daily tanker transits plummeted from ~130 to fewer than 10 vessels SS.
• Peak disruption: At its worst, roughly 13 million bpd of oil supply was trapped behind Hormuz, forcing Gulf producers to shut fields and refiners to slash runs S.
• Partial reopening (June 2026): Traffic began rising again. U.S. Energy Secretary Chris Wright said on June 9 that ship traffic through the Strait was "rising very strongly" S, and a brief window of resumed flows allowed some cargoes to depart for China.
• Ceasefire breakdown and renewed disruption: After the U.S.-Iran ceasefire collapsed, the shortfall of crude shipments from the Middle East "once-again widened, nearly back to what it was during the early months of the conflict," with prices back in the $80–$100/bbl range S.
• Current status (early August 2026): The strait is effectively functioning only on a limited basis, with insurance costs prohibitive and significant security risks remaining S. The Congressional Research Service describes traffic levels as having "fallen precipitously" from pre-war norms, though some vessels transit with transponders off .

Bottom Line

China's teapot refineries are navigating the most severe supply disruption in decades by drawing down inventories, pivoting to non-Iranian Middle Eastern crude and Russian ESPO, and navigating an increasingly aggressive U.S. sanctions regime. While July imports showed a modest rebound, the renewed disruption at Hormuz means the supply squeeze is far from over. Inventory levels at Shandong teapots remain low, and the window for Iranian crude purchases—historically the teapots' lifeblood—may be closing further as sanctions enforcement intensifies.