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What China just did with the blocking statutes against U.S. extraterritorial sanctions sets quite a major precedent, probably the financial equivalent of what happened with rare earths last year (in the sense that this is China taking a major step to push back against a U.S. hostile measure as opposed to taking it on the chin).
It's a little complex but, to start with, what many people ignore (and will probably be surprised by) is that - by and large - Chinese companies and financial institutions have largely complied with extraterritorial U.S. sanctions.
Anecdotal story on this: I know for a fact, because I personally know the person, that a very famous guy (whose name I won't reveal but that everyone of you would know) sanctioned by the U.S. was in China recently and tried to exchange money at the counter of a random Chinese bank. Just simply exchange dollars for a Chinese yuan, in mainland China. And he was refused, because he is sanctioned by the U.S. - despite the fact that China as a country has absolutely no problem with the person.
This goes to illustrate just how much goodwill China extended to the U.S. on this - a Chinese bank, in China, refusing to serve someone China has no problem with, just to comply with U.S. extraterritorial sanctions.
It also goes to illustrate why this blocking order marks such a sharp departure.
What triggered it is not new sanctions by the U.S. but recent efforts under the so-called "Operation Economic Fury" to dramatically ramp up enforcement of existing sanctions on Iran.
The U.S. notably issued at the end of April alerts to financial institutions worldwide - including in China - on "the sanctions risks associated with independent 'teapot' oil refineries in China, primarily in Shandong Province, given their continued role in importing and refining Iranian crude oil" (home.treasury.gov/news/press-rel…)
Even more importantly, they also specifically went after Hengli Petrochemical Dalian (home.treasury.gov/news/press-rel…), one of China's largest private refineries, with 400,000 barrels per day capacity and a parent company (the Hengli Group) that's a Fortune Global 500 company.
In effect, what the U.S. extraterritorial sanctions mean is that Hengli - and all other Chinese 'teapot' oil refineries being targeted - is cut off from the dollar system, and any bank, insurer, or trading partner anywhere in the world - including in China - that deals with them risks being cut off too. Which is obviously a major hostile move by the U.S. against China (and, of course, Iran).
Except that China, this time around, is not having it.
Since 2021 they've had regulations ("Measures to prevent the improper extraterritorial application of foreign laws and measures", mofcom.gov.cn/zcfb/zhzc/art/…) that gives the Chinese government power to formally prohibit compliance with foreign sanctions, and that, since this April (morganlewis.com/pubs/2026/04/c…) are also extraterritorial in nature.
In effect what these regulations - and their April addendum - say is that if you comply with U.S. extraterritorial sanctions by cutting off a Chinese company, you are violating Chinese law. Any entity - Chinese or foreign - that refuses to deal with a sanctioned Chinese company because Washington told them to can be sued in Chinese courts, fined by MOFCOM, and since April, placed on a 'Malicious Entity List' with asset freezes and trade restrictions.
In a nutshell on one side you have the U.S. saying "cut them off or we cut you off" and now China says "well, if you do cut us off we're going to be real nasty with you, in China and potentially beyond."
These regulations were - until yesterday - purely theoretical: they've never actually been applied. But, yesterday, China's MOFCOM made it crystal clear this time is different: they used a statement with a triple negative, saying the U.S. sanctions "shall not be recognized, shall not be enforced, shall not be complied with" ("不得承认、不得执行、不得遵守", mofcom.gov.cn/zwgk/zcfb/art/…).
In effect you now have companies that are in the middle of this - for instance financial institutions serving Hengli - caught in quite a bind: face U.S. or Chinese hostility. It's a no-win, they need to choose a camp on this.
Concretely speaking, given that the overwhelming majority of companies affected are operating inside China, they'll obviously choose the China side.
The real question therefore is: Is the U.S. ready to act on its threat and cut off Chinese banks or other institutions that keep servicing these refineries?
Because that probably means sanctioning major Chinese financial institutions, which is a whole different level of escalation. The moment the U.S. designates a major Chinese bank for dealing with Hengli, this stops being about Iranian oil and becomes a direct financial confrontation between the two largest economies on earth, which is a much bigger deal with probable consequences for the entire global financial system.
Or will the U.S. back off, meaning China would have effectively caught their bluff, showing that extraterritorial sanctions are a lot of bark but not a lot of bite?
We'll know in the next couple of weeks I guess.
One thing is sure though: whatever happens with these refineries, the broader damage is done. China used to extend remarkable goodwill on sanctions compliance - voluntarily cooperating with extraterritorial sanctions inside its own borders even though it had no legal obligation to respect them. That goodwill has been spent.
And, from a U.S. standpoint, a China with less goodwill vis a vis U.S. financial hegemony is undoubtedly a far bigger issue than a few teapot refineries buying Iranian oil.
Drop Site@DropSiteNews
🇨🇳 China Invokes Blocking Statute for First Time China’s Ministry of Commerce has for the first time activated its 2021 Blocking Rules, ordering all Chinese firms and individuals not to comply with U.S. sanctions targeting five independent Chinese oil refineries accused of purchasing Iranian crude. Beijing called the U.S. measures, imposed under two executive orders, an “unjustified” and “improper” use of extraterritorial law. The move puts multinational companies operating in both markets in direct legal conflict: compliance with U.S. sanctions now risks violating Chinese law, and vice versa. Global banks and firms with dollar exposure face secondary sanctions risk if they continue dealing with the affected refineries. Analysts describe the order as a significant step toward competing legal frameworks for global trade, accelerating the path to potential economic “decoupling” between the two powers.
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