BEIJING — China’s Ministry of Commerce issued a sweeping injunction on Saturday, May 2, effectively nullifying US sanctions against five Chinese oil refineries accused of purchasing Iranian crude, escalating a legal and economic confrontation between the world’s two largest economies.
The move, which invokes China’s anti-foreign sanctions law (the 2021 Blocking Statute), prohibits any Chinese entity from recognizing, complying with, or enforcing the US penalties. It represents Beijing’s most forceful defense of its energy trade with Tehran since the outbreak of the war with the United States and Israel.
“The United States cannot recognize, implement, or comply with the sanctions imposed on the aforementioned five Chinese companies.” — China’s Ministry of Commerce
🎯 The Five Sanctioned Refineries
The US Treasury’s Office of Foreign Assets Control (OFAC) had blacklisted these companies for handling oil shipments tied to Iran’s military and its “shadow fleet” of tankers.
Company Name
Location
Type
US Allegation
Hengli Petrochemical (Dalian)
Dalian, Liaoning
Major independent refiner
Purchased billions of dollars in Iranian oil; key buyer for Iran’s armed forces.
Shandong Jincheng Petrochemical Group
Shandong
“Teapot” refiner
Previously sanctioned (2025); involved in purchasing Iranian crude.
Hebei Xinhai Chemical Group
Hebei
“Teapot” refiner
Previously sanctioned (2025).
Shouguang Luqing Petrochemical
Shandong
“Teapot” refiner
Previously sanctioned (2025).
Shandong Shengxing Chemical
Shandong
“Teapot” refiner
Previously sanctioned (2025); part of ongoing “maximum pressure” campaign.
Despite the sanctions, Beijing is now legally shielding these firms from the consequences of being blacklisted, including asset freezes and exclusion from the US financial system.
⚖️ The Legal Showdown: China’s Blocking Statute
The legal basis for China’s retaliation is the Measures for Blocking the Improper Extraterritorial Application of Foreign Laws, a statute enacted in 2021 but rarely used so aggressively.
What the Order Does
Prohibits Compliance: Chinese banks cannot freeze assets based on the US SDN (Specially Designated Nationals) list.
Voids Foreign Judgments: Any US court ruling enforcing these sanctions is considered null and void in China.
Right to Sue: Chinese companies harmed by a third party’s compliance with the US sanctions can sue that third party for damages in Chinese courts.
“The injunction stipulates that the United States cannot recognize, implement, or comply with the sanctions imposed on the aforementioned five Chinese companies.” — China’s Ministry of Commerce
This creates a “legal trap” for international companies. If they cut ties with the sanctioned firms to avoid US penalties, they could face lawsuits in China for breach of contract or discrimination.
🛢️ Why These Refineries Matter
All five companies are significant players in China’s independent refining sector, which collectively accounts for roughly a quarter of the country’s total refining capacity. Known as “teapot” refineries, they emerged as major buyers of discounted Iranian crude after US sanctions were reimposed in 2018.
Hengli is the second-largest teapot refinery in China and has received over five million barrels of Iranian crude via the shadow fleet.
US Allegations: The Treasury specifically accused Hengli of generating “hundreds of millions of dollars in revenue for the Iranian military” and working with the oil sales arm of Iran’s Armed Forces General Staff.
China insists its energy cooperation with Iran is based on legitimate commercial arrangements and rejects Washington’s right to penalize third parties.
🌊 The ‘Shadow Fleet’ Context
The US sanctions are part of a broader campaign—termed “Economic Fury” —targeting the entire supply chain of Iranian oil. Prior to Saturday’s injunction, Washington had sanctioned approximately 40 shipping firms and vessels accused of acting as Iran’s “shadow fleet.”
These vessels use ship-to-ship transfers, falsified documents, and disabled tracking systems to smuggle oil to buyers in Asia. The US strategy aims to choke off revenue for Iran’s nuclear program and its proxies in the region. However, China’s blocking order directly undermines that strategy by removing the risk for the end-buyers.
📉 Market Reaction and Future Risks
Following the initial US sanctions in late April, shares of Hengli Petrochemical dropped by 10 percent. However, Beijing’s legal shield may stabilize investor confidence by assuring the market that these companies will not be forced into bankruptcy by US actions.
However, global banks and shipping insurers now face a dilemma: they risk penalties in the US if they service these firms, but risk legal action in China if they blacklist them.
📋 Key Takeaways
Aspect
Summary
The Injunction
China’s Ministry of Commerce issued a legal order forbidding compliance with US sanctions against 5 refineries.
The Targets
Hengli (Dalian) and four other “teapot” refineries.
US Allegation
Refineries purchased billions in Iranian oil, funding Iran’s military.
China’s Stance
The US sanctions are “unilateral” and violate international law.
The “Shadow Fleet”
Over 40 vessels were sanctioned alongside the refineries for smuggling oil.
The Dilemma
International firms face liability in the US if they comply with China, and in China if they comply with the US.
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