China Invokes Rules To Blunt US Sanctions On 'Teapot' Refiners

“The rules are one such legal tool to counter unreasonable external sanctions, protect the legitimate overseas business rights of Chinese companies, safeguard the security of industrial and supply chains and maintain a fair international economic and trade order,” he said.

He added that China has also set an important example, providing a useful reference for other countries, especially developing economies, to respond to such economic sanctions and trade bullying.

“Since 2025, the US has imposed sanctions on Chinese refining, shipping and port companies over their involvement in Iranian oil trade, freezing assets and banning transactions,” said Cui Fan, a professor at the School of International Trade and Economics at the University of International Business and Economics and chief expert at the China Society for World Trade Organization Studies.

“It has ignored Chinese companies' claims to legitimate rights, expanded the scope of sanctions and adopted increasingly aggressive measures,” he said.

“If China allows this to continue, this will disrupt the stability of China's energy supply chain and harm its energy security and development interests,” he said.“In this context, using the Blocking Rules is a necessary step to safeguard China's national and corporate interests, while the framework also provides institutional mechanisms to protect the lawful rights of Chinese citizens, legal entities and other organizations.”

He pointed out that the US Treasury's SDN list now includes about 18,900 entities and individuals, including more than 1,100 linked to mainland China and over 400 connected to Hong Kong, and that the so-called 50% rule extends the impact to a wide network of affiliated companies.

The United States' 50% rule means that any entity owned, directly or indirectly, 50% or more by one or more sanctioned parties is also treated as blocked, even if it is not explicitly listed, effectively preventing the use of subsidiaries or affiliates to circumvent restrictions.

The dispute has further fueled political tensions between Beijing and Washington ahead of US President Donald Trump's planned meeting with Chinese President Xi Jinping in China on May 13 and 14. The two leaders are expected to discuss a range of issues, including the ongoing conflicts in Ukraine and Iran, as well as trade frictions and export control measures.

On April 15, Treasury Secretary Scott Bessent said the US had sent letters to two Chinese banks warning them of the risk of secondary sanctions if they are found to be supporting transactions tied to Iran. He did not disclose the names of banks.

On April 24, the OFAC added Hengli Petrochemical (Dalian) Refinery to the SDN list, describing it as one of Tehran's most valued customers. It also sanctioned around 40 shipping firms and vessels alleged to be operating as part of Iran's so-called shadow fleet. On April 28, it warned financial institutions about secondary sanctions risks associated with China's independent“teapot” refineries.

Despite Washington's strong warnings, Beijing did not back down. On May 2, it invoked the Blocking Rules, a legal framework adopted at the end of Donald Trump's first term in January 2021. The rules empower the Ministry of Commerce to lead an interagency working mechanism, together with the state planner and other departments, to assess whether foreign laws and measures constitute improper extraterritorial application.

The mechanism considers four main factors:

whether the measure violates international law or basic norms of international relations potential impact on China's sovereignty, security and development interests potential impact on the lawful rights and interests of Chinese citizens, legal entities and other organizations other relevant factors

The rules also allow companies and banks to apply for exemptions. Parties seeking to comply with a restricted foreign measure must submit a written request to the Ministry of Commerce outlining the reasons and scope. The ministry typically makes a decision within 30 days, or sooner in urgent cases.

Some observers said such an arrangement could allow large banks with global operations and US-based assets to comply with US sanctions, while smaller local banks continue to settle Iranian oil trade transactions and face the associated risks.

Zhou Chengyang, a Chinese current affairs commentator, told Sputnik that“teapot” refiners such as Hengli are expected to continue settling crude purchases in renminbi, using a mix of strategic reserves and market-based procurement to diversify settlement channels and ensure the security of their oil supply operations.