BEIJING/WASHINGTON — China directly confronted the United States on Saturday in the economic dimension of the Iran war, ordering companies nationwide not to comply with American sanctions on five Chinese oil refiners that Washington has accused of trading in Iranian fuel — deploying a legal instrument that has never been used before and that analysts say could fundamentally complicate U.S. sanctions enforcement.
China's Ministry of Commerce said late on Saturday that it had conducted an in-depth assessment of the sanctions against the five firms and concluded that the action taken by "the United States on the aforementioned companies constitutes improper extraterritorial application."
The order was the first application of a measure designed to block "improper" foreign actions, and could be a potential headache for U.S. sanctions enforcement, according to analysts.
The Five Firms at the Center of the Dispute
China's Ministry of Commerce said that among those targeted by Washington were five Chinese refineries: Hengli Petrochemical (Dalian) Refinery, and "teapot" refineries Shandong Jincheng Petrochemical Group, Hebei Xinhai Chemical Group, Shouguang Luqing Petrochemical and Shandong Shengxing Chemical.
The so-called teapot refineries — a term for China's sprawling network of small, independent oil processors — have become a central focus of the Trump administration's campaign to cut off Iranian oil revenues. Treasury's Office of Foreign Assets Control had already imposed sanctions on the five facilities, warning banks and financial institutions to conduct enhanced due diligence when dealing with the refiners or firms that could be helping Iran route its oil through China.
That Treasury guidance warned specifically of "front companies" that Iran has used to "broker shipments" and accept payments, as well as Iran's so-called "shadow fleet" that it says "regularly engage[s] in deceptive shipping practices."
Washington's Position: Sanctions Are Lawful and Will Be Enforced
The U.S. State Department said that the sanctions were part of "decisive action to disrupt Iran's illicit oil trade" and that the country would hold Iran and sanctions-evading partners accountable as long as oil revenues were used to fund "destabilizing activities" in the region.
The sanctions are part of a broader economic campaign the Treasury Department has internally dubbed "Economic Fury" — a deliberate echo of the military's Operation Epic Fury — designed to squeeze Iran's finances while U.S. and Israeli forces continue their military campaign. Treasury Secretary Scott Bessent has said he sent letters to Chinese banks warning of secondary sanctions if they facilitate transactions with Iran, and warned that Treasury is prepared to sanction anyone who conducts business with Iranian airlines.
Beijing's Countermove: The Blocking Rules
China's response on Saturday was notable not just for its defiance but for the legal mechanism it chose to deploy. Beijing wheeled out its "Blocking Rules" for the first time, ordering non-compliance with the American action — a move observers say could mark a new stage in Beijing's pushback against American long-arm jurisdiction.
The Blocking Rules, which China enacted in 2021 but had never previously invoked, give Beijing's commerce ministry the authority to prohibit Chinese entities from complying with foreign sanctions it deems to constitute improper extraterritorial overreach. Their activation Saturday puts Chinese companies in a legally impossible position: comply with U.S. sanctions and risk punishment in China, or defy them and face American penalties.
For global banks and financial institutions with exposure to both jurisdictions, the order creates an immediate and acute compliance dilemma — and that, analysts suggest, may be precisely the point.
A Front in the Broader U.S.-China-Iran Triangle
The sanctions battle over Chinese teapot refineries is the economic front line of a broader geopolitical contest playing out simultaneously across military, diplomatic and financial domains. China has been Iran's most important oil customer throughout the period of maximum Western pressure, providing Tehran with a crucial revenue lifeline that Washington is now attempting to sever as part of its war strategy.
The guidance is part of a broader push by Treasury to exert maximum economic pressure on Iran as President Trump looks to resume full-scale negotiations that could wind down the U.S.'s war. But China's decision to formally shield the targeted firms signals that Beijing has no intention of allowing Washington to use its sanctions architecture to reshape Chinese energy supply chains — and that it is prepared to escalate the legal and economic confrontation to make that point.
The standoff comes as Trump is expected to eventually travel to Beijing for talks with President Xi Jinping, a meeting that now carries even greater weight given the widening rift over Iran oil sanctions. Whether the two leaders can find a formula that addresses Washington's Iran concerns without Beijing conceding the principle of U.S. sanctions jurisdiction over Chinese firms remains deeply uncertain.
What is clear is that Saturday's order represents the most direct formal challenge China has yet mounted to America's use of economic coercion in the Iran conflict — and that the battle over who controls the flow of Iranian oil, and who pays the price for buying it, is far from over.
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