On May 2, the Ministry of Commerce of China issued an injunction to block US restrictions against five independent Chinese oil refineries that have been sanctioned for importing Iranian oil and utilizing so-called ‘shadow fleets’.
Here’s why Beijing made this decision and why it could be historically significant.
Think slow, act fast
China has been inching towards this decision for the past year. The Shouguang Luqing refinery in Shandong province was the first to be added to the sanctions list on March 20, 2025. By October, the US had imposed restrictions on three other ‘teapot’ refineries.
Finally, on April 24, 2026, Hengli Petrochemical (Dalian) Refinery Co., Ltd., fell under sanctions. With a capacity of 400,000 barrels per day, the facility in Dalian exceeds the combined capacity of the four previous refineries. This seems to have been the tipping point, prompting the Chinese government to shift from verbal threats to decisive action.
The legal groundwork has been in place for some time: a local law against foreign sanctions was passed in 2021, but remained largely symbolic due to the absence of implementing regulations. The delay made sense: the law was adopted during US President Donald Trump’s first term. After the thaw in US-China relations under [former US President Joe] Biden, it was put on hold. Ultimately, the directive to activate this law was only signed by Chinese Premier Li Qiang in March 2025.
Finally, on April 14, 2026, China implemented the Regulations on Countering Improper Extraterritorial Jurisdiction by Foreign States. These regulations contain 20 articles, including provisions that allow the Chinese government to add individuals and organizations involved in discriminatory measures against China to its sanctions list. Those included in the list could be expelled from China or denied entry; their assets could be frozen, and they may be banned from doing business with any individuals or organizations in China.
The situation with Iran
Evidently, China has taken the first practical step regarding the five refineries. As mentioned earlier, this move was tied to the US sanctions against the major refinery in Dalian. The sanctions themselves are the result of America’s conflict with Iran – or more accurately, the blockade of the Strait of Hormuz.
To recap, Iran allows only those ships that coordinate their routes with the Iranian authorities (i.e., pay for passage) to enter the strait, while the US attempts to prevent any vessels from leaving the Persian Gulf.
As a result, traffic through the strait has plummeted by 20-30 times compared to pre-war levels; however, Iran has seen the smallest decrease relative to other countries. This is primarily because Iranian ‘shadow fleet’ tankers do not need to seek approval from their own authorities, and they are more willing to take risks, navigating past US naval warships – typically along the Iranian coast and in Pakistani territorial waters. In contrast, legitimate ships refrain from such maneuvers, as they cannot risk losing insurance coverage.
As of April 22, at least 34 Iranian tankers have successfully navigated around the US maritime blockade since it began, averaging about 3-4 vessels per day. These figures are comparable to pre-war levels, and nearly all the oil from these tankers is headed for China. Consequently, we observe a direct attempt by Washington to influence Chinese buyers of Iranian oil, trying to pressure them into backing away.
The situation can’t last forever
Chinese authorities have made many comments regarding secondary US sanctions, but most of these statements have either been declarative (asserting that they won’t let third countries dictate their trade relationships) or made behind closed doors.
This approach aligns with traditional Chinese policy: avoiding direct confrontation, steering clear of disputes, seeking loopholes, and achieving objectives through subtle means. Moscow has felt the impact of this strategy firsthand: since 2022, China has engaged in trade with Russia rather discreetly. Everyone knew that China was purchasing Russian oil, but new US sanctions affected the flow of those shipments.
The same applied to Iran: when there was an oversupply of oil, China had the luxury of being selective. The market was determined by buyers; sanctioned oil was bought only as a last resort and at a large discount. Tankers could be anchored for months waiting for better conditions, and so on.
However, faced with a severe oil shortage, China was forced to enter into a more direct conflict with the US. The United States is unlikely to retaliate effectively, and China’s decision will likely lead to the establishment of a transparent alternative trading and payment infrastructure.
All the major decisions have long been made in this regard (for example, the creation and implementation of CIPS, China’s equivalent to SWIFT), but like the sanctions law, the alternative payment infrastructure has remained largely dormant for years.
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For the past four years, Russia has been calling on its partners to take action: finding an alternative to the dollar, departing from American control over international trade, and replacing semi-clandestine payment schemes with a solid, transparent, and reliable system. And for the past four years, Russia’s trading partners shrugged off these calls, implying, ‘You want it? You go do it. We don’t want problems with the US.’ Iran found itself in a similar position, but unlike Russia, it relied on China as its de facto sole buyer.
Now, ironically, it’s Trump who is forcing China to change this approach. In doing so, he risks shooting himself in the foot, since his actions may provoke a new, tougher, and more decisive Chinese policy. Beijing has all the political, economic, and financial tools at its disposal to make this happen.