China defies US sanctions on Iranian oil

Oil sanctions are supposed to work by making buyers back away. But in this case the biggest buyer did the opposite. On May 2, China’s Commerce Ministry issued an injunction telling Chinese entities not to recognize or comply with U.S. sanctions on five Chinese refineries accused of buying Iranian crude. That is the real news here — not just that China keeps buying Iranian oil, but that Beijing is now openly using domestic law to push back. ### What exactly did China do? Beijing named five companies — Hengli Petrochemical (Dalian) Refinery, Shandong Jincheng Petrochemical Group, Hebei Xinhai Chemical Group, Shouguang Luqing Petrochemical, and Shandong Shengxing Chemical — and said U.S. sanctions on them violate international law and basic norms of international relations. The injunction says those U.S. measures cannot be recognized, implemented, or complied with inside China. That is a sharper move than a routine diplomatic protest — it is China telling domestic firms to ignore Washington’s penalties. (money.usnews.com) ### Why are these refineries the target? They are the so-called teapots — independent Chinese refineries, mostly in Shandong, that buy discounted barrels other buyers avoid. Treasury says China purchases about 90% of Iran’s oil exports, and teapot refineries account for most of those imports. Since March 2025, Washington has sanctioned multiple China-based teapots that it says processed billions of dollars’ worth of Iranian-origin oil. (money.usnews.com) ### Why does Iran care so much? Because oil is the cash engine. The U.S. says Iranian petroleum exports remain Tehran’s most important economic lifeline and fund weapons programs, proxies, and regional operations. On May 1, Washington added another round of sanctions, hitting Qingdao Haiye Oil Terminal and other entities it says helped move tens of millions of barrels of Iranian crude and funneled billions of dollars to Tehran. This was the 12th round of sanctions on Iranian oil sales since February 4, 2025. (home.treasury.gov) ### How does the trade keep working? Basically through a sanctions-evasion system that is now well practiced. Treasury highlights front companies in Asia and the UAE, intermediary brokers, ship-to-ship transfers, falsified paperwork, and a shadow fleet that masks where oil came from. Industry sources say payments often avoid major banks and the U.S. dollar system, moving instead through smaller local banks, yuan settlement, and other higher-friction channels. (state.gov) ### So do U.S. sanctions still matter? Yes — but mostly by raising cost and hassle, not by fully stopping the trade. Reuters says the sanctions have already created hurdles for the refiners, including trouble receiving crude and having to sell refined products under different names. S&P Global says banks with international exposure are still likely to avoid Iran-linked transactions even with Beijing’s blocking order in place. That means China can shield the refineries politically, but it cannot erase the financial risk. (home.treasury.gov) ### Why is this more serious than the usual back-and-forth? Because the fight is no longer just over oil cargoes. It is over whose rules apply. Washington is using secondary sanctions to scare off terminals, shippers, banks, and brokers far beyond the United States. Beijing is now using its own blocking rules to tell Chinese firms the opposite. That creates a direct legal collision for any company that touches both systems — a bit like being told by two traffic cops to drive in opposite directions at the same intersection. (money.usnews.com) ### Where do Saudi Arabia and Kuwait fit in? The main, confirmed story is the U.S.-China-Iran triangle. The reporting I could verify centers on Chinese refiners, Iranian supply, U.S. sanctions, and the logistics around Shandong and Qingdao. I did not find solid primary-source support for a new Saudi or Kuwaiti policy shift tied directly to this May 2026 move, so that part looks less certain than the headline dispute itself. (home.treasury.gov) ### Bottom line? China is still buying the oil, the U.S. is still sanctioning the network, and now Beijing is formally shielding the buyers. That does not break the dollar system overnight. But it does show something important — U.S. sanctions are no longer being quietly worked around here. They are being openly contested. (home.treasury.gov) (state.gov)