Chinese refineries prepare for potential US Iran sanctions: sources

More Chinese independent oil refineries are preparing for potential US sanctions over their involvement in Iranian oil-related business, setting up new entities and registering separate bank accounts to get around any measures that are imposed, according to industry sources.

The move comes after the US sanctioned China's second-largest independent refinery Hengli Petrochemical (Dalian) Refinery, and Qingdao Haiye Oil Terminals.

"Independent refineries, no matter big or small, and oil logistic facilities, which handled Iranian oil, are at higher risk than ever amid the Iran conflict and the coming China-US summit," a Shandong-based refining source said.

While the Chinese government issued a ban order on May 2 stipulating that US sanctions on Chinese refineries -- the primary purchasers and dealers of Iranian crude -- should not be recognized, enforced or complied with, the industry is anticipating a potential financial clampdown from Washington, the sources said, which include Shandong-based refiners, traders and port officials.

The US Treasury on April 28 issued an alert warning banks of sanctions risk in doing business with independent refineries in China, particularly in Shandong Province, which might be importing and refining Iranian oil.

Any Chinese bank with international exposure will likely avoid transactions related to Iran, even with the Chinese government's ban, the sources said.

"To continue with 'legitimate and necessary' operation, banks are allowed to apply for an exemption from the ban," the Shandong-based refiner said, citing the "Measures for Blocking the Unjustified Extraterritorial Application of Foreign Laws and Measures" that the Chinese government issued in 2021.

"Iranian oil transactions usually go through local small banks that are isolated from the US dollar systems, settling in Chinese yuan, but the charges are high," a second Shandong-based refiner said.

He added that crypto is preferred by Iranian suppliers who usually offer discounts compared with those settled in Chinese yuan.

"But the discount is just to compensate for the higher transaction fees as crypto is banned in China, [and] an agent is needed to deal with the offshore exchange from currencies to crypto," he said.

US President Donald Trump is scheduled to visit China on May 14-15.

Beijing backs sanctioned entities

Since April 2025, Beijing has been backing Chinese entities placed on the US sanction list, assisting in special marine approvals and coordinating operational issues between refineries and their supply chains.

For now, sources expect sanctioned refineries to continue operating in China. Besides Hengli Petrochemical (Dalian) Refinery, four Shandong- and Henan-based independent refineries were sanctioned by the US in 2025.

Meanwhile, cargoes discharged at the Shandong ports have recovered to normal levels despite three port companies at Dongying, Dongjiakou and Rizhao also being sanctioned in 2025, according to tracking data from S&P Global Commodities at Sea.

"Similarly, Qingdao Haiye Oil Terminals will survive to serve the refineries in Weifang after some administration work," a shipping source said, echoed by a port source and three traders.

Qingdao Haiye Oil Terminals owns one VLCC berth in Qingdao city's Huangdao district in Shandong province and discharged about 200,000 b/d of crude in the first four months of 2026, CAS data showed.

It was sanctioned by the US on May 1, Platts, part of S&P Global Energy, reported.

The private refining sector is concerned about cheap Iranian supplies drying up amid the ongoing US-Iran conflict, the sources said. The US has blockaded Iranian ports to pressure Tehran into a peace deal.

"Difficult to make a profit without the supplies, as the Venezuelan barrels are gone," a third Shandong refiner said.

The independent refining sector imported 1.49 million b/d of Iranian crude in the first quarter, up 3% year over year, data collected by Platts showed.

Iranian Light was offered at a premium of $3/b to July ICE Brent Futures on a DES Shandong basis May 4, up slightly from the $2-$3/b premium a week ago, according to market sources.

Source: US Treasury Department, S&P Global Energy Platts