China Channels Russian Oil Through Iran Despite Sanctions

China is quietly ramping up imports of Russian oil by routing supplies through Iran, creating a shadow network that challenges U.S. sanctions and reshapes global energy flows. For traders, the maneuver underscores how shifting alliances and covert logistics are influencing oil markets and pricing dynamics.

The Rise of the Shadow Fleet

Much of the trade relies on a “dark fleet” of tankers that switch off tracking systems, conduct ship-to-ship transfers in open waters, and relabel cargo to disguise its origin. These methods allow Russian and Iranian oil to enter China’s refining system under false documentation, often recorded as Malaysian or other third-country supplies.

Independent “teapot” refineries in China have become key buyers, drawn by steep discounts compared with benchmark crude. The practice keeps Russian barrels moving even as Western restrictions tighten.

Iran as a Key Hub

Iran, itself under sanctions, has become a redistribution hub for Russian crude. Industry trackers estimate that around 13–14% of China’s oil imports this year have originated in Iran, much of it blended with Russian shipments before heading east.

Financial intermediaries and front companies have been used to disguise the flows. Analysts estimate that more than 130 million barrels, valued at nearly $10 billion, have moved into China this way, bypassing formal trade channels.

Beijing Pushes Back on U.S. Pressure

Washington has stepped up warnings, signaling possible secondary sanctions on buyers of Russian and Iranian oil. But Beijing has dismissed the pressure, stressing that its energy strategy is guided by national interest. Chinese officials argue that reliable oil supplies are essential for growth and stability, regardless of Western restrictions.

Market Implications

For global oil markets, the rise of this parallel network complicates supply forecasts. Sanctions evasion distorts trade flows, reshapes shipping routes, and increases uncertainty in futures pricing. Freight rates and insurance premiums are also being pushed higher by the reliance on older, less-regulated vessels.

For traders, the key risk lies in policy shifts. Any escalation of U.S. or European sanctions could tighten enforcement, disrupting these flows and sparking volatility across crude benchmarks and refined products.

Tips for Traders

• Monitor crude freight and insurance costs tied to shadow fleet activity.

• Watch Chinese “teapot” refinery demand for signals on discounted imports.

• Track U.S. sanctions policy for potential secondary measures.

• Follow Brent and Dubai spreads for signs of pricing dislocations.

• Consider hedges around oil futures as geopolitical tensions reshape flows.