The United States has stepped up actions aimed at dismantling a key revenue stream for Iran by singling out privately operated Chinese refiners and the maritime networks that support them. U.S. authorities recently announced sanctions on a unit of Hengli Petrochemical and roughly 40 affiliated shipping firms, alleging their role in the purchase of billions of dollars of Iranian petroleum.
Reporting indicates these independent refiners - often called "teapots" - have become an important mechanism for maintaining Iranian crude flows despite international restrictions. The sector, concentrated primarily in Shandong province, runs largely outside the orbit of China’s state-owned oil giants and is said to settle many transactions in Chinese yuan rather than U.S. dollars. That structural separation from the U.S. financial system is central to why these firms have been able to play this role.
Analysts cited in available reports estimate that Iranian crude made up about 12% of China’s oil imports in 2025, translating to roughly 1.4 million barrels per day. To sustain those deliveries, an extensive logistics chain has developed, involving a surge in the number of vessels suspected of transporting Iranian crude. One watchdog group identified nearly 600 ships believed to have been involved in covert movements of Iranian oil, a sharp jump from about 70 such vessels in 2020.
Maritime operators tied to the trade have relied on tactics commonly described as "dark fleet" behavior. That includes disabling transponders and conducting ship-to-ship transfers to obscure the origin of cargoes. The Treasury Department has cautioned financial institutions that facilitating payments or other transactions tied to the implicated refiners could expose those institutions to secondary sanctions.
Beijing has defended the privately run refiners. The Foreign Ministry said unilateral sanctions applied by the United States "have no basis in international law," framing the response as a sovereign defense of commercial actors. At the same time, the use of private refiners allows the state to obtain cheaper supplies while keeping a buffer between state-owned enterprises and the sanctioned activities.
Hengli Petrochemical has publicly denied the U.S. allegations. Independent financial statements from the company show a marked increase in scale: the firm’s revenue reportedly has roughly tripled since 2018, reaching about $30 billion last year.
U.S. officials and analysts acknowledge the difficulty of fully halting the trade. Observers argue that achieving a material disruption to these flows would likely require measures beyond financial penalties, pointing to possibilities such as direct interdictions of vessels or even strikes on infrastructure - options that would represent a significant escalation.
For now, the private refiners continue to function as a resilient element of China’s energy supply framework. What began as a domestic sector sometimes viewed as problematic has evolved, according to available accounts, into a strategic piece of energy security for China by enabling discounted access to crude while reducing direct exposure of state entities to sanctioned partners.
Key points
- U.S. sanctions targeted a unit of Hengli Petrochemical and about 40 shipping firms for alleged purchases of billions in Iranian petroleum - impacting oil trading and shipping sectors.
- Independent "teapot" refiners, concentrated in Shandong, are estimated to have processed roughly 12% of China’s oil imports in 2025 (around 1.4 million barrels per day), highlighting their significance for energy supply chains.
- Dark fleet tactics and increased use of yuan settlements reduce reliance on the U.S. financial system and complicate enforcement, with potential consequences for maritime insurance, commodity finance, and downstream fuel markets.
Risks and uncertainties
- Enforcement risk - Authorities warn that stopping the trade may require forceful steps such as ship interceptions or strikes on infrastructure, representing a substantial escalation with broad geopolitical and market implications.
- Financial exposure - Warnings about secondary sanctions create uncertainty for banks and trading houses that might facilitate payments for the affected refiners, potentially disrupting commodity finance.
- Operational opacity - The widespread use of transponder disabling and ship-to-ship transfers increases risks for maritime insurers and complicates market transparency, which could affect shipping costs and fuel availability.