China Bars Firms From Complying With U.S. Sanctions on Five Chinese Refiners, Its First Use of the 2021 Blocking Rules

Five Refiners, Two Sets of Rules

On April 24, 2026, the U.S. Treasury added Hengli Petrochemical, a 400,000-barrel-a-day refinery in Dalian, to its sanctions list. Treasury said Hengli had been buying crude from Sepehr Energy, which it describes as the oil sales arm of Iran's Armed Forces General Staff^[5][11]. The same action swept up roughly 40 shipping companies and tankers tied to what Treasury calls Iran's shadow fleet^[5][6].

Eight days later, Beijing answered. On May 2, China's Ministry of Commerce published Announcement No. 21, ordering anyone inside China not to recognize, not to carry out, and not to comply with the U.S. sanctions against Hengli and four other refiners^[1][2]. It was the first time China had used this power since the rule allowing it took effect in January 2021^[2][4].

That single fact is the whole story in miniature. A refinery can now be legal to do business with in Beijing and illegal to do business with in Washington, at the same time, for the same transaction^[1][5]. Nobody in the middle gets to pick just one set of rules.

What the Order Actually Does, and What It Doesn't

China's tool is called the Blocking Rules, and the mechanism is simpler than it sounds. A blocking order doesn't cancel a foreign sanction. It tells people and companies inside China to act as if the sanction doesn't exist — don't freeze the target's assets, don't cut them off, don't comply^[1]. Refuse to comply with the U.S. sanctions, or you may run into trouble with Chinese law instead.

That distinction matters because several headlines said China "blocks" the U.S. sanctions, which overstates what happened^[3]. The five refiners are still on Treasury's Specially Designated Nationals list. U.S. persons still have to freeze their property and avoid dealing with them^[5]. What China's order changes is only the domestic side: inside China, walking away from these refiners now carries its own legal risk^[1][13].

The order didn't arrive by itself. In March and April, China's State Council issued two new regulations. One, effective March 31, covers industrial and supply chain security^[12]. The other, effective April 13, targets what Beijing calls "improper extraterritorial jurisdiction" by foreign states, and it creates something called the Malicious Entity List^[13][14]. Any company or person that helps carry out a foreign sanction inside China can be added to that list and face frozen assets, blocked transactions, travel bans, or fines^[13].

Same Facts, Opposite Conclusions

Both governments agree on the basic chain of events. Where they split is on who was in the wrong first, and that split runs on a single word: jurisdiction.

Washington's case rests on where the money went, not where the oil changed hands. Treasury says Sepehr Energy is the sales arm of Iran's Armed Forces General Staff, and that Hengli bought crude through it, sending hundreds of millions of dollars toward Iran's military^[5][11]. On this view, a refinery that knowingly buys from a military-linked seller isn't a neutral bystander. U.S. officials also point out that no company is forced to use the dollar-clearing system. If a firm chooses to bank through it, Washington argues, it accepts the rules that come with it^[7].

Beijing's case rests on where the deal happened, not where the money went. Two Chinese companies trading in Chinese ports, under Chinese law, are not a proper target for U.S. penalties, the Commerce Ministry argues — the only U.S. hook is that oil gets priced in dollars^[1][9]. Chinese officials call this "long-arm jurisdiction," the idea that控制ling the world's main payment currency lets one country set rules for deals it isn't actually part of^[9]. Chinese commentary also points out that blocking statutes aren't a Chinese invention — the European Union has had one since 1996 — so Beijing frames its move as using a tool the West built first, not creating a new one^[7][9].

Neither argument is really about the facts of the oil trade. It's about who gets to decide the rules for a transaction that touches both countries.

The Companies Stuck Answering to Both

The imperative behind all of this is straightforward: U.S. sanctions work through banks, not battleships. Washington doesn't need China's cooperation to make the designation sting — it just needs banks and insurers to fear losing access to the dollar system if they keep dealing with a sanctioned firm^[4][5]. That's why Rubio's next move, according to reporting cited by Geopolitechs, was aimed at counterparties: anyone who complies with China's blocking order, including foreign banks, risks losing U.S. financial access themselves^[4].

That leaves banks, insurers, traders, and shippers with operations in China facing two governments telling them opposite things. Freeze a refiner's account, and a firm follows U.S. law but risks landing on China's Malicious Entity List. Don't freeze it, and a firm follows Chinese law but risks U.S. penalties^[3][7][15]. There's no version of full compliance that satisfies both sides at once.

Vague standards make the bind worse. Terms like "malicious entity" and "improper extraterritorial jurisdiction" are defined case by case by regulators, not by a fixed checklist, so a company often can't know in advance whether a given transaction is safe^[13][14]. Many multinationals are responding by walling off their China units, so decisions made in Shanghai don't get made — or even seen — by headquarters^[7][15].

For the refiners themselves, mostly independent, privately owned plants in Shandong province known as "teapots" for their modest size next to state giants, the stakes are narrower but real. They run on thin margins and rely on discounted crude, including Iranian barrels, to stay competitive^[9][10]. China's order protects them from being cut off inside China. It does nothing to restore their access to dollar payments or Western insurance^[3][5].

How the Story Gets Told Depends on Where You're Reading It

Coverage of the same set of facts split along predictable lines, and the split shows up mostly in verb choice. Bloomberg's headline said Beijing "tells" firms to "ignore" U.S. sanctions — accurate reporting, but "ignore" centers defiance over the legal mechanics[Bloomberg]. Al Jazeera's headline said China "blocks" the sanctions, which implies an effect on the U.S. designations that the order doesn't actually have, though a companion explainer on the anti-sanctions law was more even-handed^[3][8].

Fox News covered the U.S. sanctions themselves as a "sweeping Iran oil crackdown," largely leaving out the compliance bind it created for firms in China^[6]. Foreign Policy's headline said China's laws are "ensnaring" Western companies, casting firms as prey and treating the U.S. version of extraterritorial reach as the baseline rather than one side of a symmetrical dispute^[7]. On the Chinese side, the nationalist commentary site Guancha described the order as China "drawing its sword" for the first time against U.S. "long-arm jurisdiction" — without addressing Treasury's central allegation about Iran's military benefiting from the oil sales^[9].

Asia Times came closest to precise language, describing China's move as "blunting" the sanctions rather than "blocking" or "defying" them, though it still framed Beijing as reactive throughout^[10]. Watch for those verbs elsewhere: "defies" and "ignores" carry the U.S. frame, "blunts" and "defends" carry Beijing's, and "blocks" claims a legal effect the order doesn't actually produce on the American side of the ledger.

What Doesn't Change

Iranian crude is still moving through shadow-fleet tankers into Shandong's refineries^[5][11]. The five companies are still on the U.S. sanctions list, and China's order hasn't removed them from it or reopened their access to dollar clearing^[1][5]. Both of the new Chinese regulations took effect immediately, with no transition period, and are enforced administratively by a wide range of agencies rather than through courts — meaning the exposure for foreign firms is fast-moving and hard to predict^[12][13].

What has changed is smaller but real: for any bank, insurer, or trading firm with people and assets in both countries, there's no longer a way to fully comply with one government's rules without risking a penalty from the other^[1][3][13]. China has used this tool once in five years. Whether it reaches for it again — and how the U.S. responds if it does — will likely shape how far the next round of sanctions can actually reach.