Beijing Tells China Firms to Ignore US Sanctions on Refiners

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(Bloomberg) — China ordered companies in the country not to comply with US sanctions on five domestic refiners linked to the Iranian oil trade, deploying a blocking measure introduced in 2021 that was aimed at protecting its firms from foreign laws it deemed unjustified.

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The refiners — including Hengli Petrochemical (Dalian) Refinery Co. which was sanctioned last month and several other privately-owned processors — had been facing asset freezes and transaction bans.

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The US measures unlawfully restrict normal trade with third countries and breach international norms, the country’s commerce ministry said in a statement on Saturday. In a rare move, it issued an order banning recognition, enforcement, and compliance with the sanctions aimed at the five companies.

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“The Chinese government has consistently opposed unilateral sanctions that lack authorization from the United Nations and a basis in international law,” the department said.

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The sanctions and Beijing’s response come just weeks before an expected and long-awaited meeting between President Donald Trump and his counterpart Xi Jinping. While the blocking measure is not likely to derail the summit, Washington’s reaction to it will indicate if the matter escalates, according to analysts from Eurasia Group. 

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“The refineries primarily work with Chinese banks that have not yet been directly sanctioned,” the analysts led by Dominic Chiu wrote in a note. “If the US extends secondary sanctions to those institutions, or major state-owned entities, Beijing would likely respond with more forceful countermeasures.”

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China has long been the single largest buyer of Tehran’s oil shipments, many of them arriving indirectly and through private refiners, and then turned into gasoline, diesel and other oil products. Chinese customs data do not reflect that trade, with the last official shipment recorded several years ago.

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Before Hengli, and wary of the economic and diplomatic fallout, Washington’s efforts to cut off Tehran’s oil revenue had targeted smaller Chinese companies and facilities. Hengli, by contrast, is representative of the most modern of China’s private refiners, with a sprawling oil-processing and chemicals complex in the northeastern province of Liaoning. 

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While the country does still have an army of small independent players — the original so-called teapots — the larger entities are now giant operations. Altogether, the private sector accounts for as much as a third of refining capacity, in a country where energy security is an unchallenged priority.

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The injunction “allows the refineries to seek compensation in Chinese courts from entities that comply with US sanctions, including domestic actors — such as banks, investors, and downstream customers that have ceased dealings — as well as foreign firms with a presence in China,” the Eurasia analysts said, adding the move signals Beijing is taking a more assertive approach to countering sanctions. 

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“By activating its blocking measures for the first time since adopting the rule in 2021, China is demonstrating a lower threshold for deploying its legal and regulatory toolkit to counter US sanctions,” they said.

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(Updates with more context, analysts comments from fifth paragraph)

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