China’s tech strength increasingly rests on cheap, often sanctioned energy–a model that exposes Europe to new kinds of strategic risk as global supply chains shift.
If the US lifts its sanctions on Iranian oil, it could affect a lesser-known factors behind China’s competitiveness: China’s ability to purchase Iranian oil at discounted rates. Sanctioned countries like Iran often offer lower their prices to customers willing to bear the associated risks.
The shift would primarily affect China’s independent refineries. Still, consequences could extend as far as Europe–where supply chains rely on cheap goods from China, and manufacturers who rely on energy from cheap Iranian oil.
This exposes how energy shocks abroad can reshape global innovation flows nearer home, and poses a challenge for the EU’s efforts to achieve greater resilience.
Independent Chinese refiners, known as “teapots,” accounted for 77 per cent of Iran’s crude exports this year, Reuters reported May 19. These smaller players benefit from steep discounts offered by Tehran, whose sanctioned oil cannot enter most formal markets.
If Washington moves ahead with lifting restrictions as part of a renewed nuclear deal, Iran could redirect its exports, leaving these “teapots” without a viable supply, and potentially pushing them out of the market altogether.
While Western analysts have framed this story as a simple commodity market adjustment, its implications may go much further.
The teapots provide energy inputs to several of China’s emerging tech-intensive sectors, including AI development and high-volume battery manufacturing. Their collapse could lead to higher domestic energy costs, and could tighten margins in industries that rely on cheap abundant energy to scale compute and production.
A May 20 study by the Brussels-based Bruegel Institute underscores how critical technologies are often supported by what it calls “spill-overs” — indirect enablers like infrastructure, low-cost inputs, and talent migration.
The study compares the innovation ecosystems of China, the US, and the EU. It concludes Europe is more exposed than the others to disruptions outside its control, especially when upstream supply chains are involved.
The US is reportedly engaged in negotiations with Iran aimed at easing tensions between the two countries.
President Donald Trump has a strong political incentive to push oil prices down, as lower energy costs help offset the inflationary effects of his tariff-heavy trade agenda.
This strategy has already been visible in Trump’s recent outreach to Saudi Arabia (covered by Belgian bank ING and Washington-based think tank CSIS).
President Trump appears to be promising large-scale US contracts to buy more oil in exchange for a commitment from the Saudis to produce more of it. This is a familiar transactional model.
The Saudi government reportedly responded by signalling its openness to boosting supply, a move that would put further downward pressure on global oil prices.
Reports also mention a diplomatic gesture from Qatar, including the offer of a private jet, illustrating the broader Gulf engagement with Trump’s willingness to buy more Middle Eastern oil..
These global realignments coincide with a broader trend identified by Brussels-based Egmont Institute in a study on strategic tech diplomacy.
It describes a “gilded triangle” linking Silicon Valley, Saudi money, and Washington, where private and state interests intersect to shape energy flows and also investment strategies in key technologies.
The study argues this informal alliance already influences how innovation and infrastructure are distributed globally.
For Europe, the combination of these developments raises substantial concerns.
While energy security has been a long-standing priority, how it connects to digital and industrial competitiveness is vaguer in the minds of most policymakers.
The EU Chips Act seeks to reduce dependency on non-European semiconductor production, but these recent studies suggest that energy access, raw materials, and geopolitical alignment still remain under-addressed in resilience planning.
The Bruegel study underlines how the US still maintains the competitive edge in critical technologies.
This is due to its strong innovation ecosystem, substantial public and private investment in research and development, and an integrated approach to managing spill overs across sectors.
These are factors that together could sustain the US’s technological leadership amid rising global competition.
