US, China Disagree Over Refinery Sanctions

The United States and China are in a fresh standoff over sanctions targeting Chinese oil refineries accused of processing Iranian crude, escalating tensions between the two largest economies.

In April, the US Treasury Department sanctioned five Chinese refineries, alleging they generated billions for Iran by refining its crude in defiance of restrictions.

China’s Ministry of Commerce responded by invoking its 2021 Blocking Rules for the first time, ordering domestic firms to ignore the sanctions. Beijing argued the measures violate international law and interfere in China’s internal affairs.

The directive puts multinational companies in a bind: complying with US sanctions risks penalties in China, while following Beijing’s order could expose them to secondary US sanctions, including loss of access to the dollar system.

Among the refineries shielded by China’s order are Hengli Petrochemical’s Dalian facility and four independent “teapot” refineries in Shandong and Hebei, which have been key buyers of discounted Iranian crude.

Analysts warn the clash creates direct legal conflict between jurisdictions, raising uncertainty for global energy markets. “While output is increasing on paper, the real impact on physical supply remains very limited,” said Jorge Leon of Rystad Energy, noting the broader disruption from the Strait of Hormuz blockade.

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

Experts say the UAE’s recent OPEC+ exit and China’s refinery stance highlight growing fragmentation in global energy and sanctions regimes, with companies caught between competing legal systems.