US authorities have instructed financial institutions to be wary of transactions involving independent Chinese oil refineries, warning trades carry a high risk of exposure to Iranian oil even among non-sanctioned buyers.
China purchases around 90% of Iranian crude oil exports, the majority of which are bought by so-called teapot refineries, the Office of Foreign Assets Control (OFAC) said in an April 28 alert.
OFAC has already imposed sanctions on five teapot refineries since the resumption of President Donald Trump’s “maximum pressure” campaign on Iran last year, including last week’s designation of its second largest facility, Hengli Petrochemical (Dalian) Refinery.
In the alert, it instructed financial institutions to avoid facilitating transactions involving other refineries “that may be importing Iranian oil”, and to conduct enhanced due diligence on transactions involving Chinese importers, particularly in the eastern province of Shandong.
Lenders should also communicate their expectations to Chinese correspondent banks and gather additional information on any relevant customers or transactions, the authority said.
The alert said Iran uses front companies, often in Hong Kong or the UAE, to broker shipments of sanctioned oil to teapot refineries.
Iranian entities use those front companies’ bank accounts to receive payment and access foreign currency, it said. Such companies have also been involved in transportation, discharge operations and storage services.
OFAC also reiterated earlier warnings that Iranian oil is often blended with crude from other markets to disguise its origin, or relabelled using forged documents. It said “Malaysian blend” is the most common false label given to Iranian-origin cargoes.
A US-based lawyer previously told GTR they had seen evidence of a “cottage industry” in Malaysia, where oil inspection services will issue seemingly legitimate paperwork that hides Iranian involvement in blended cargoes.
The US’s growing pressure on Chinese refineries has drawn criticism from Beijing, however.
After last week’s designation of Hengli, Chinese foreign ministry spokesperson Lin Jian said this week the country “opposes unilateral sanctions that have no basis in international law”.
OFAC said Hengli “is one of Iran’s largest customers for crude oil and other petroleum products, having purchased billions of dollars’ worth of Iranian petroleum”, but Hengli said this week it has “never engaged in any trade with Iran”.
