U.S. warns banks of sanctions risk over China ‘teapot’ refineries handling

The U.S. Treasury warned financial institutions Tuesday that they could face sanctions if they engage in dealings with Chinese refineries that process Iranian oil.

The Treasury urged financial institutions in a statement to avoid facilitating transactions involving independent refineries, known as “teapots,” that import Iranian oil, as such transactions may expose them to sanctions.

China purchases approximately 90% of Iran’s oil exports, the Treasury noted, with teapot refineries accounting for the majority of these imports.

“This revenue ultimately benefits the Iranian regime, its weapons programs, and its military. Some Chinese teapot refineries have used the U.S. financial system to conduct dollar-denominated transactions and procure U.S. goods,” the Treasury added.

It also called on institutions to “conduct enhanced due diligence” on transactions involving China-based refineries, particularly those in Shandong province, and other Asia-and Middle East-based entities involved in Iran’s oil supply chain to China.

U.S. Treasury Secretary Scott Bessent said on X that the Treasury “will continue to exert maximum pressure and any person, vessel, or entity facilitating illicit flows to Tehran risks exposure to U.S. sanctions.”

Bessent said Iran’s main export terminal on Kharg Island is “soon nearing storage capacity,” which could force Tehran to cut production and lose about $170 million in daily revenue.

The move comes as Washington aims to cut off revenue streams to Iran as part of a “maximum pressure” campaign imposed by U.S. President Donald Trump in February, weeks before the war with Iran began.

Last week, the U.S. sanctioned one of China’s largest teapot refineries, Hengli Petrochemical (Dalian) Refinery, describing it as one of Iran’s largest customers of crude oil ​and petroleum products.

Four other teapot refineries have also been sanctioned. The Treasury has also expanded the dragnet to include port terminal operators in Shandong Province and logistics services providers linked to Iranian oil shipments.

Iranian crude is usually transported to Chinese teapot refineries using a “shadow fleet” of tankers, which are sanctioned vessels that manipulate their location data to avoid detection.

Many shipments involve multiple ship-to-ship transfers, sometimes using scrapped vessels that are no longer in operation, often in the Persian Gulf or the Strait of Malacca, to obscure their origins.

In some cases, Iranian oil is blended with supplies from other countries or relabeled with forged documents to further disguise its origins, most commonly known as ‘Malaysian blend,'” the Treasury said.

The warning comes less than a month before a planned visit by Trump to Beijing, where trade and investment are expected to be discussed.

Last week, during a meeting with Iranian Foreign…