US Navy Strike on Iranian Tanker Threatens China's Oil Supply Chain

The recent US Navy strike that sank an Iranian oil tanker has dealt a significant blow to China's oil supply. The tanker was loading at Kharg Island, where 90% of Iran's oil exports are loaded, and its sinking is expected to drastically hit Chinese oil supplies.

This attack marks the first time the US has targeted the physical supply chain feeding China's refineries. Previously, Washington had imposed financial sanctions on Tehran, but China was able to circumvent these restrictions by using its own payment rails and barter-style clearing to route around dollar transactions.

The majority of cheap crude from Iran is purchased by China's smaller independent coastal refineries, known as 'teapot' refineries. These refineries account for 25% of China's production of petroleum products and have been able to buy Iranian oil at steep discounts that state refiners won't touch.

However, with the US Navy destroying the tankers carrying this oil, the supply chain is bound to get hit. The teapot refineries are already low on stocks due to the choking of the Strait of Hormuz, which has reduced supplies in the global market.