China is pushing back against United States sanctions targeting its oil trade with Iran, calling the measures “illegal” and warning that maximum pressure tactics will only fuel further conflict. The escalating diplomatic confrontation comes as Washington attempts to choke off Tehran’s petroleum revenues by penalizing independent Chinese refineries.
Beijing Retaliates Against US Extraterritorial Sanctions
China’s Ministry of Commerce concluded that recent US measures constitute an improper extraterritorial application of domestic law that violates international norms. In response, Beijing has invoked its 2021 Rules on Counteracting Unjustified Extraterritorial Application of Foreign Legislation, commonly known as its “Blocking Rules.”
The resulting formal injunction marks a distinct shift in Beijing’s approach. Historically, Chinese companies and financial institutions largely complied with US sanctions imposed beyond America’s borders, even when those measures lacked formal endorsement from Beijing. Under the new directive, however, the US measures “shall not be recognised, shall not be enforced, shall not be complied with,” according to the ministry.
The clash creates acute legal risks for businesses caught between jurisdictions. Any entity operating within China—domestic or foreign—that severs commercial ties with sanctioned firms to comply with Washington now faces potential lawsuits in Chinese courts, regulatory penalties, or placement on a “Malicious Entity List” that could trigger asset freezes and trade restrictions.
Operation Economic Fury and the Targeted Refineries
The standoff follows an intensified enforcement push by Washington under “Operation Economic Fury,” which aims to restrict Iran’s ability to fund destabilizing activities through oil sales. China remains the biggest buyer of Iranian oil.
The US Department of State recently targeted five Chinese refineries, accusing them of trading in Iranian petroleum. Four of the designated entities are independent “teapot” oil refineries concentrated in Shandong Province: Shandong Jincheng Petrochemical Group, Hebei Xinhai Chemical Group, Shouguang Luqing Petrochemical, and Shandong Shengxing Chemical. The fifth is Hengli Petrochemical in Dalian, one of the nation’s largest private refining firms with a daily capacity of roughly 400,000 barrels.
Under secondary sanctions, these companies risk exclusion from the dollar-denominated global financial system. Global banks, insurers, and trading partners that continue doing business with them also face potential financial penalties.
A Chinese foreign ministry spokesman argued that economic warfare does not resolve underlying problems. As both governments navigate the standoff, global financial institutions face a narrow path: follow US directives and breach Chinese law, or ignore them and risk being locked out of international trade channels.
