The U.S. Treasury issued a warning to financial institutions on April 29, 2026, stating that they could face sanctions if they engage in transactions with Chinese refineries, known as 'teapots,' that process Iranian oil [1]. The Treasury emphasized that these independent refineries account for the majority of China's imports of Iranian oil, with China purchasing approximately 90% of Iran's oil exports [1]. The revenue generated from these transactions is said to benefit the Iranian regime, its weapons programs, and its military [1].
The Treasury highlighted that some Chinese teapot refineries have used the U.S. financial system to conduct dollar-denominated transactions and procure U.S. goods, raising the risk of sanctions exposure for involved financial institutions [1]. Financial institutions were urged to conduct enhanced due diligence on transactions involving China-based refineries, particularly those in Shandong province, as well as other entities in Asia and the Middle East linked to Iran's oil supply chain to China [1].
U.S. Treasury Secretary Scott Bessent stated on X that the Treasury would continue to exert maximum pressure, warning that any person, vessel, or entity facilitating illicit flows to Tehran risks exposure to U.S. sanctions [1]. Bessent also noted that Iran's main export terminal on Kharg Island is nearing storage capacity, which could force Tehran to cut production and result in a loss of about $170 million in daily revenue [1].
This warning follows recent U.S. sanctions imposed on Hengli Petrochemical (Dalian) Refinery, one of China's largest teapot refineries and a major customer of Iranian crude oil and petroleum products, as well as four other teapot refineries [1]. The Treasury has also expanded sanctions to include port terminal operators in Shandong Province and logistics service providers linked to Iranian oil shipments [1]. Iranian crude is typically transported to Chinese teapot refineries using a 'shadow fleet' of sanctioned tankers that manipulate location data and employ ship-to-ship transfers, sometimes using scrapped vessels, to obscure the oil's origin [1]. In some cases, Iranian oil is blended or relabeled with forged documents, often as 'Malaysian blend,' to further disguise its source [1].
The timing of the warning is notable, coming less than a month before a planned visit by President Trump to Beijing, where trade and investment issues are expected to be discussed [1].
CONCLUSION
The U.S. Treasury's warning signals a significant escalation in efforts to cut off Iranian oil revenue, targeting Chinese teapot refineries and associated financial institutions. With recent sanctions already imposed on major refineries and expanded to logistics and port operators, the market faces heightened risk and uncertainty regarding the flow of Iranian oil to China. The move is likely to impact global oil markets and financial institutions with exposure to these transactions.