The Hengli refinery, China’s second-largest, has generated hundreds of millions of dollars for Iran’s military, the US Treasury says.

The United States has sanctioned a Chinese oil refinery for buying hundreds of millions of dollars worth of Iranian oil.

Ahead of potential new talks on ending the US-Israeli war on Iran, the US Treasury Department on Friday said that it was targeting Hengli Petrochemical (Dalian) Refinery, China’s second-largest “teapot” or independent refinery.

Hengli is “one of Tehran’s most valued customers” and has generated hundreds of millions of dollars in revenue for the Iranian military through crude oil purchases, the Treasury added.

It also imposed new sanctions on about 40 shipping firms and vessels alleged to be operating as part of Iran’s shadow fleet.

The Chinese embassy in Washington, DC pushed back against the move.

“We call ‌on the US to stop politicising trade and sci-tech issues and using them as a weapon and a tool and stop abusing various kinds of sanction to hit Chinese companies,” a spokesperson said.

China gets more than half of its oil from the Middle East, and last year purchased more than 80 percent of Iran’s shipped oil, according to analytics firm Kpler.

The US Navy has blockaded Iranian ports since April 13, in what President Donald Trump claims is a bid to further choke Iran’s proceeds from oil and gas exports.

Teapots under pressure

China’s “teapot” refineries are small, privately owned refineries, mostly based in Shandong province and nicknamed for their teapot-like shape.

They play a key role in beefing up China’s oil supplies by importing and stockpiling discounted Iranian and Russian oil – while allowing state-owned enterprises to remain more insulated from politically risky oil trading.

US Treasury Secretary Scott Bessent pledged Friday to continue targeting the “network of vessels, intermediaries, and buyers Iran relies on to move its oil to global markets”.

“Any person or vessel facilitating these flows – through covert trade and finance – risks exposure to US sanctions,” he said.

Aside from the prospect of sanctions, the US-Israel war on Iran has increased financial pressures for teapot refineries, which are facing “high replacement prices in a market already strained by global tensions”, Brussels-based economic think tank Bruegel reported last month.

Even before the war began, the Trump administration was targeting China’s independent refineries.

Last year, the Treasury sanctioned Hebei Xinhai Chemical Group, Shandong Shouguang Luqing Petrochemical and Shandong Shengxing Chemical.