China has formally nullified US sanctions on five Chinese refiners accused of buying Iranian oil, signaling a major shift in how Beijing responds to extraterritorial US measures and raising new risks for global finance and diplomacy.
The US action, part of an enforcement push called Operation Economic Fury, targeted four independent “teapot” refiners concentrated in Shandong province—Shandong Jincheng Petrochemical Group, Hebei Xinhai Chemical Group, Shouguang Luqing Petrochemical and Shandong Shengxing Chemical—and Hengli Petrochemical in Dalian, one of China’s largest private refiners with roughly 400,000 barrels per day capacity. Washington says the designations aim to choke off oil revenues that it believes finance destabilizing activities.
Those blacklisted face exclusion from the dollar-denominated financial system: any bank, insurer or trading partner that continues to work with them could be subject to US secondary sanctions, extending Washington’s reach across global markets.
Beijing’s response is a clear departure from earlier practice, when Chinese firms and banks often complied with US sanctions even without formal Chinese endorsement. China’s commerce ministry has deemed the US measures an improper extraterritorial application of domestic law and invoked the 2021 Rules on Counteracting Unjustified Extraterritorial Application of Foreign Legislation—known as the Blocking Rules—to issue its first formal injunction against foreign sanctions. The ministry declared the US measures not to be recognized, enforced or complied with in China.
Practically, China has created domestic legal risks for entities that follow US sanctions. Companies or financial institutions that sever ties with the sanctioned refiners to comply with Washington could face Chinese lawsuits, regulatory penalties or placement on a domestic Malicious Entity List, which can trigger asset freezes and trade restrictions.
That creates a stark dilemma for global banks and corporates: comply with US sanctions and potentially violate Chinese law, or ignore Washington’s measures and risk being cut off from the dollar-based system that underpins international trade. Chinese banks in particular face acute exposure.
Washington also faces a lose-lose choice. Pressing sanctions against major Chinese banks could provoke a direct financial standoff between the world’s two largest economies, a shock the existing global financial architecture is ill-prepared to absorb. Yet if the US backs down, the deterrent value of secondary sanctions could be diminished.
The dispute comes at a sensitive moment, ahead of a planned visit by former US president Donald Trump to China where significant commercial deals, possibly including a large Boeing sale, may be discussed.
Beyond the immediate fate of a handful of refineries, the clash signals a broader contest over the future reach of extraterritorial sanctions. China’s more assertive posture suggests the previous tacit accommodation of US measures is eroding, and the effectiveness of unilateral financial coercion as an instrument of policy may now be in greater doubt.