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China Cracks Down on Teapot Refineries
China is accelerating the shutdown of private oil refineries known as "teapot refineries" amid environmental concerns and escalating tensions with the United States. These small facilities, which once processed nearly a third of China's oil, are accused of violating environmental regulations, undermining state-owned enterprises, and trading in sanctioned Iranian oil.
Sanctions Evasion Backfires
Recent data shows nearly 90% of Iran's 2023 oil exports went to China, primarily through these private refiners. By purchasing discounted Iranian oil under US sanctions, these refineries saved costs but created diplomatic friction. Last month, the US sanctioned two Chinese refineries, highlighting how these operations strain Sino-American relations during ongoing trade disputes.
Environmental and Economic Pressures
China's 2060 carbon neutrality goal conflicts with the teapot refineries' outdated, polluting technology. Many operate without proper permits, releasing excessive sulfur and particulates. Simultaneously, declining oil demand from electric vehicle adoption and reduced construction has created overcapacity. This threatens state-owned oil giants that previously dominated the market.
Policy Reversal
After a decade of encouraging private refiners to boost competition and curb illegal oil trade, Beijing revoked their tax benefits earlier this year. This has forced widespread closures. Analysts note this policy shift addresses both environmental targets and US diplomatic concerns, removing a key irritant in the complex bilateral relationship.
