U.S. Sanctions Third Chinese “Teapot” Refinery for Violating Iran Sanctions - Association of Certified Sanctions Specialists

U.S. Sanctions Third Chinese “Teapot” Refinery for Violating Iran Sanctions

On May 8, 2025, the U.S. Department of State announced sanctions against Hebei Xinhai Chemical Group Co., Ltd., marking the third instance of a Chinese independent “teapot” refinery being designated for purchasing Iranian oil in violation of U.S. sanctions. This action underscores the U.S. government’s ongoing efforts to enforce sanctions aimed at curbing Iran’s oil exports and its associated revenue streams. Reuters

Understanding “Teapot” Refineries

“Teapot” refineries are small to medium-sized independent oil refineries in China, primarily located in provinces like Shandong and Hebei. Unlike state-owned enterprises, these refineries operate with greater flexibility and have historically been more agile in sourcing crude oil from various suppliers, including sanctioned entities. Their operations have come under increased scrutiny due to their involvement in importing Iranian crude oil, often through complex networks designed to evade international sanctions.

Previous U.S. Actions Against Chinese Teapot Refineries

Prior to the designation of Hebei Xinhai Chemical Group, the U.S. had sanctioned two other Chinese teapot refineries:

  1. Shandong Shouguang Luqing Petrochemical Co.: Sanctioned in March 2025 for purchasing approximately $500 million worth of Iranian oil from vessels linked to Iran’s Ministry of Defense and Yemen’s Houthi rebels. Morningstar
  2. Shandong Shengxing Chemical Co., Ltd.: Designated in April 2025 for importing over $1 billion in Iranian crude oil, thereby providing significant financial support to Iran’s government and affiliated militant groups. AP News

These actions are part of the broader “maximum pressure” campaign by the U.S. to limit Iran’s ability to fund its nuclear program and regional activities. Reuters

Impact on Global Trade and Compliance

The sanctions against these teapot refineries have had a ripple effect on global oil trade and compliance practices:

  • Operational Disruptions: Sanctioned refineries have faced challenges in securing financing and insurance, leading to operational slowdowns.
  • Market Shifts: Other independent refineries in China have become more cautious, reducing or halting imports of Iranian crude to avoid potential sanctions. Reuters
  • Enhanced Due Diligence: Companies engaged in Energy business worldwide are reevaluating their compliance programs to ensure they are not inadvertently engaging with sanctioned entities.

Best Practices for ACSS Members

To navigate the complexities of international sanctions and avoid dealings with sanctioned entities, ACSS members should consider the following best practices:

  1. Robust Due Diligence: Implement comprehensive screening processes for all counterparties, including suppliers, customers, and intermediaries, to identify any links to sanctioned entities.
  2. Continuous Monitoring: Stay updated on the latest sanctions lists and advisories issued by authorities such as the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC).
  3. Training and Awareness: Regularly train compliance and operational staff on sanctions regulations and the importance of adherence to international laws.
  4. Transaction Screening: Utilize advanced software tools to monitor transactions for red flags, such as unusual payment structures or routing through high-risk jurisdictions.
  5. Engage with Legal Experts: Consult with legal professionals (and your fellow ACSS members) specializing in international trade and sanctions to assess and mitigate potential risks.
  6. Our recent webinar– US-China Challenges: Compliance Risks, Investment Issues, and Trade Control Concerns addressed these and other challenges sanctions and export control professionals will face.  ACSS members can access the recording here.  Not yet an ACSS member?  Learn more here.