US Sanctions First Chinese ‘Teapot’ Refinery Over Iran Links

(Bloomberg) — The US is sanctioning a Chinese oil refinery and a terminal operator over links to Iranian crude imports, in the first measures to directly target China’s refining system as President Donald Trump seeks to press Tehran into a fresh nuclear deal.

China’s private refiners, known as teapots, are a vital supply chain link in the world’s largest oil importer and the largest purchasers of Iranian oil — but to date they have escaped US blacklists, which have focused instead on middlemen and individual tankers.

The sanctioned refiner, Shandong Shouguang Luqing Petrochemical Co., Ltd., is not one of China’s largest private processors, but it is one of a constellation of operators in the eastern province of Shandong. The refinery’s Chief Executive Officer Wang Xueqing is also being sanctioned, the Treasury said.

Alongside it, Washington has added a terminal operator in southern Guangdong. Smaller, privately run terminals have become an increasingly important part of the trade, as larger port operators pull back.

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.”

According to the Treasury Department, Luqing Petrochemical has purchased millions of barrels of Iranian oil valued at approximately $500 million. 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 move, read by the market as a step up for Washington, helped Brent crude extend its advance on Thursday to trade above $72 a barrel in the morning session in Asia. The global benchmark was heading for its biggest weekly gain since early January.

“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.”

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.

Since the new administration took office in January, it has brought in four separate waves of Iranian oil sanctions as part of Trump’s “maximum” pressure campaign to drive Tehran’s crude exports to China to zero.

“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.”

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. Bloomberg had previously reported on the Titan’s role in Iran’s oil trade.

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.

The storage terminal targeted by Washington is operated by Huaying Huizhou Daya Bay Petrochemical Terminal Storage Co., a privately-run storage and terminal operator controlled by Shanghai-listed Wintime Energy Group Co. 

In response to a query earlier this year, a Wintime spokesman said its Huizhou terminal received crude from Malaysia and Singapore but not Iran, and said both the company and its subsidiary Huaying operated in accordance to Chinese regulations.

–With assistance from Weilun Soon and Andrew Janes.

(Adds context in paragraphs 1, 3 and details on Huizhou sanctioned terminal)

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