US, China Clash Over Sanctions on Chinese Refineries Linked to Iran Oil Trade

The United States and China have entered a fresh diplomatic and legal confrontation over sanctions targeting Chinese oil refineries accused of processing Iranian crude, escalating tensions between the world’s two largest economies.

The dispute centres on sanctions imposed by the United States Department of the Treasury on five Chinese refineries allegedly involved in refining Iranian oil in violation of existing restrictions.

In response, China’s Ministry of Commerce issued a prohibition order directing companies operating within its jurisdiction to disregard the sanctions, marking Beijing’s first application of its 2021 Blocking Rules.

The Chinese government stated that the US sanctions violate international law and constitute interference in its domestic economic affairs.

Beijing also invoked its Anti-Foreign Sanctions Law, instructing domestic companies and financial institutions to continue business dealings with the affected refineries despite US measures.

The move places multinational firms operating in China in a difficult position, as compliance with US sanctions could expose them to penalties in China, while adherence to Chinese directives could trigger punitive measures from Washington.

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Among the affected facilities is Hengli Petrochemical’s Dalian refinery, one of China’s largest and most advanced private refining complexes.

Other refineries named include Shandong Jincheng Petrochemical, Hebei Xinhai Chemical, Shouguang Luqing Petrochemical, and Shandong Shengxing Chemical, all of which are independent “teapot” refiners.

These smaller refineries play a significant role in China’s energy sector and have been key buyers of discounted Iranian crude, providing Tehran with an alternative market amid US sanctions.

The US action is part of ongoing efforts to restrict Iran’s oil exports under its “maximum pressure” policy aimed at limiting Tehran’s nuclear-related revenues.

China, however, maintains that the sanctions are unlawful and disrupt legitimate global trade flows.

Beijing’s Blocking Rules are designed to counter extraterritorial sanctions and protect Chinese firms from foreign legal actions deemed harmful to national interests.

The current standoff introduces direct legal conflict between Chinese and US regulatory frameworks, increasing uncertainty for global energy companies and financial institutions.

Market analysts say the dispute could further complicate global oil trade routes and payment systems, particularly if secondary sanctions are extended to Chinese banks.

Such an escalation could affect dollar-based transactions and disrupt settlement mechanisms used in international crude oil trade.

The confrontation comes ahead of a planned meeting between US President Donald Trump and Chinese President Xi Jinping, adding diplomatic sensitivity to already strained relations.

The People’s Republic of China Ministry of Commerce has maintained that it will defend domestic companies from what it describes as unilateral sanctions.

Meanwhile, US authorities insist that enforcement actions are necessary to curb Iranian oil revenue flows and maintain global sanctions compliance.