How independent Chinese oil refiners defy US sanctions on Iran

DW (English)

Known as "teapot" refineries, some smaller Chinese oil companies buy Iranian oil despite US sanctions. But their business model, based on buying the oil at a steep discount, is now coming under mounting pressure.

Transcript

00:00Evading US sanctions is business as usual for Chinese refineries like this one.

00:10Almost all of Iran's sanctioned oil ends up here in Shandong province,

00:16bought at around half the cost of legitimate oil.

00:19It's imported by independent oil refineries known as teapots because of their shape.

00:28The teapot refineries make up around a quarter of China's total refining capacity.

00:34They can employ up to a thousand people each to operate and repair them.

00:40The factories have a knock-on positive effect on the rest of the economy as well.

00:45I'm from this village. I'm a local. I've had this shop for many years.

00:50My customers are from all around the area. They work here in the factories.

00:57Mr Ma says his salary more than doubled in a decade thanks to the refineries.

01:04The quality of our lives has increased.

01:08But the teapots are under scrutiny. For the first time,

01:12Washington has started sanctioning them for using Iranian oil.

01:16The impact could be limited for now.

01:18A lot of the sales are actually focused domestically in China. But what we do see is that,

01:24going forward, the US government may put even more pressure on China,

01:29from government to government, control-wise.

01:31Also in Washington's crosshairs, dozens of shell companies based in Hong Kong that it says

01:37are being used to launder money from those oil sales.

01:40The Chinese refineries, it's easier for them to pay someone in Hong Kong rather than in Iran,

01:47because there is no transactional relationship with Iran directly.

01:53Beijing is also putting the teapots under pressure by hiking up the taxes on oil imports.

01:59Beijing wants to reduce refining over capacity, and the teapot refineries aren't as efficient

02:05or as eco-friendly as the larger, more modern facilities.

02:10And this may go against the tangent of what the country really wants to pursue in the long term,

02:14which is to become a very productive economy.

02:16In recent years, the teapots have seen their profit margins collapse.

02:21Sanctioned, discounted oil and underpaying taxes are baked into the business model.

02:28Analysts predict closures and redundancies in the coming years.

02:33Mr. Ma is fatalistic.

02:35The thing is, fewer people are needed. Work that used to be done by two people can now be done by one.

02:45Shandong's local government has increased tax rebates for some refineries,

02:50trying to protect a sector that has turned sanctions into strategy.

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