China has, for the first time, invoked a law that allows Chinese entities blacklisted by Washington to be prohibited from complying with American sanctions. These are Chinese companies accused by the United States of illegally buying Iranian oil. Result: a probable dilemma for foreign companies who will have to choose between provoking the ire of Donald Trump or Xi Jinping.

Published on: 06/05/2026 - 15:58Modified on: 06/05/2026 - 15:59

Return of Sino-American trade tensions. Beijing took advantage of the war in the Middle East to draw a weapon against American economic sanctions which risks having an impact on world trade.

China used for the first time, Saturday May 2, a recent law which requires Chinese companies to ignore American sanctions targeting them. Under a measure adopted in 2021 called the "Extraterritorial Sanctions Blocking Act", five Chinese oil refineries were ordered to act as if they had not been placed on a US blacklist.

A measure never applied until now

For a year, Washington has decided to increase pressure on Chinese imports of Iranian oil. In March 2025, the United States had already sanctioned four Chinese refineries, accused of importing Iranian crude. The Trump administration just added one to this list on April 28: Hengli Petrochemical.

The American Treasury accuses him of financing “terrorism” and the Iranian nuclear program by massively purchasing oil sold by Tehran.

This time, Beijing responded. China's blocking law "requires related parties - such as banks, suppliers, insurers or customers - to continue doing business with Chinese entities sanctioned by the United States", explains Xin Sun, specialist in the Chinese economy at King's College London.

To display this YouTube content, it is necessary to authorize audience measurement and advertising cookies.

An extension in your browser appears to be blocking the loading of the video player. To be able to watch this content, you must disable or uninstall it.

“This law was developed at the end of Donald Trump’s first term to strengthen the system allowing China to respond to customs duties and other sanctions imposed by the American president since 2018 and the start of the trade conflict between the two powers,” explains Marc Lanteigne, China specialist at the Arctic University of Norway.

Beijing has been careful not to draw this weapon until now. “China preferred to take more measured initiatives – such as limiting certain exports of rare earths or imposing targeted customs duties – whereas this law acts more like a sledgehammer since it purely and simply requires ignoring American sanctions under penalty of being sanctioned by China,” underlines Marc Lanteigne.

The Chinese regime has decided that the time has come to move up a gear. Firstly because the Chinese believe “they cannot afford to let the sanctions imposed on Hengli Petrochemical pass”, assures Xin Sun.

Protecting Chinese “tea refineries”

This company belongs to what we call Chinese “tea refineries”. “Originally, it was a term for a hundred small independent refineries,” explains Xin Sun. They were initially seen as a thorn in the side of the two state-owned oil giants, Sinopec and China National Petroleum. Beijing considered them unnecessary competition to these public groups.

Then everything changed in 2015. Instead of trying to close them, China decided to allow them not only to refine oil but also to import it. Since then, they have become a major tool for buying oil from sensitive countries like Venezuela or Iran... leaving the public behemoths out of any transaction that could provoke American ire. “Tea refineries help keep the Tehran regime afloat,” Daniel Roth, director of research at United Against Nuclear Iran, an American pressure group, told the Wall Street Journal.

Read alsoMiddle East: how China armed itself in the face of an oil shock

“Today, although these refineries are still private, they are no longer really so small and Hengli Petrochemical is one of the largest,” notes Xin Sun. For this expert, there is a real escalation on the part of the United States between the four tea refineries sanctioned last year and which played a relatively minor role and Hengli "which is not only important for energy imports, but on which many other subcontractors also depend who risk suffering economically due to American sanctions", specifies Xin Sun.

China also believes that now is the right time to take action. “She thinks she is in a position of strength against the Americans who are struggling to end the war against Iran. The conflict has weakened the American economy and created tensions between Washington and its European allies,” analyzes Marc Lanteigne.

Choose your side

This escalation in the American escalation, however, risks causing collateral damage. “All partners, including international ones, of Hengli Petrochemical and other sanctioned refineries will have to choose between risking being sanctioned by the United States or by China,” summarizes Marc Lanteigne.

Indeed, if, for example, a European insurer follows the American order to no longer insure oil imports from Hengli Petrochemical, it will be violating Chinese law. As a result, sanctioned Chinese entities can file a complaint, and “Chinese authorities can seize or freeze the assets that the company has in China” to, for example, cover possible fines imposed on the foreign company, explains Xin Sun.

Also read: Rare earths: how is the United States trying to catch up with China?

This American-Chinese standoff against a backdrop of oil trade also risks embarrassing the Gulf countries. Traditional allies of the United States, they also do not want to anger China, a major consumer of their oil. “The United Arab Emirates have particularly sought to adopt the most neutral position possible to maintain good relations with the two rival powers,” underlines Marc Lanteigne. A more complicated balancing act to succeed if Washington and Beijing begin to more eagerly ask everyone to choose sides.

For now, Xin Sun believes that it is especially urgent to wait a little. Indeed, the escalation of trade tensions is partly due to the American desire to financially strangle Iran by putting pressure on Chinese oil buyers. “It’s the policy of maximum pressure for a very short-term impact,” notes the economist. The United States could go back as soon as the war against Iran ends.

Additionally, a crucial visit by Donald Trump to Beijing is planned for May 15-16. The two countries have drawn out their claws and their weapons - American sanctions against Chinese blocking law - to try to be in a position of strength for the upcoming negotiations, according to the experts interviewed.

“It is possible that at the end of this summit, the two countries will agree to return to the status quo before these measures,” maintains Xin Sun. Otherwise, the experts interviewed acknowledge that the international business landscape will become more complicated for everyone to navigate.

Keywords associated with the article

The content you are trying to access does not exist or is no longer available.