US Sanctions Chinese Refinery It Says Is Linked to Iran

(Bloomberg) — The US is sanctioning a Chinese oil refinery and its chief executive officer for allegedly buying Iranian oil, as President Donald Trump demands that Tehran agree to a new deal to restrict its nuclear program.

The so-called teapot refinery has purchased millions of barrels of Iranian oil valued at approximately $500 million, the Treasury Department said in a statement Thursday. It also has received Iranian crude carried by previously sanctioned ships linked to the Houthi rebels that have been attacking shipping in the Red Sea, it said.

The refinery — Shandong Shouguang Luqing Petrochemical Co., Ltd. — is located in Shandong Province, home to most of China’s private processors. The refinery’s CEO Wang Xueqing is also being sanctioned, the Treasury said.

The moves are significant as they mark the Trump administration’s first intervention in China’s oil-refining system, the bedrock of crude consumption in the world’s largest oil importer. Although individual teapot refineries can be small, Treasury said it was the first time it is designating such an entity.

“We see this as a clear risk escalation for physical flows for the region, though today’s moves stopped short of a full physical impediment to the illicit Iranian oil trade into China,” RBC Capital Markets LLC analysts including Brian Leisen said in a note. “We think it reasonable that risk premium here is taken more seriously.”

Brent crude extended a 1.7% advance on Thursday to trade above $72 a barrel in the morning session in Asia. The global benchark was heading for its biggest weekly gain since early January.

The US also placed sanctions on an oil terminal in China where it said Iranian crude was stored. The measures are being imposed as part of Trump’s “maximum” pressure campaign to drive Iran’s oil exports to China to zero, the State Department said in a statement.

“The real important aspect is that this is showing the direction of travel in terms of US pressure on Iran,” said Jorge Leon, head of geopolitical analysis at consultant Rystad Energy. “We are still far away from ‘max pressure’ but the message is that the US administration is escalating pressure.”

Purchases by small, independently run, oil refineries in China “provide the primary economic lifeline for the Iranian regime,” Treasury Secretary Scott Bessent said in a statement. “The United States is committed to cutting off the revenue streams that enable Tehran’s continued financing of terrorism and development of its nuclear program.”

In his first term in office Trump showed a willingness to hit the supply chain carrying Iranian oil to China, irrespective of the impact on the market. One episode saw the US sanction a major Chinese shipping line, which caused a brief but major disruption in oil tanker markets that sent earnings soaring to hundreds of thousands of dollars a day.

The Treasury is also sanctioning eight vessels allegedly linked to a “shadow fleet” of ships that carry Iranian oil as well as the registered owners of the ships. They include the Comoros-flagged Natalina 7; the Panama-flagged Catalina 7, Aurora Riley and Viola; the San Marino-flagged Montrose; the Barbados-flagged Volans and Brava Lake and the currently unflagged Titan.

Registered owners Astrid Menks Limited and Canes Venatici Limited, both based in Hong Kong, were also sanctioned, along with the China-based Citywallship Management Co. Ltd. and the Liberia-based Placencia Services Incorporation.

(Updates with analyst comment in 5th paragraph, oil prices in 6th)

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