The US Treasury’s Office of Foreign Assets Control designated Hengli Petrochemical (Dalian) Refinery Co., Ltd. on April 24, targeting what officials describe as one of the largest buyers of sanctioned Iranian crude oil.
Hengli operates China’s second-largest “teapot” refinery, a term for the country’s independent, non-state-owned refineries. The facility in Dalian processes 400,000 barrels per day.
Billions in alleged purchases, millions of barrels delivered
According to the Treasury’s findings, Hengli has been purchasing billions of dollars’ worth of Iranian petroleum products since at least 2023. More than five million barrels were reportedly delivered to the company using sanctioned vessels, part of what’s commonly called the “shadow fleet.”
The revenue generated from these sales allegedly flowed back to Iran’s Armed Forces General Staff through its sales agent, Sepehr Energy Jahan Nama Pars Company. The Treasury characterized those proceeds as amounting to hundreds of millions of dollars.
The sanctions didn’t stop at Hengli alone. OFAC’s action extended to roughly 40 associated shipping entities and vessels.
Hengli has pushed back firmly, calling the sanctions baseless and denying any involvement in purchasing Iranian crude.
The teapot refinery problem
China’s teapot refineries have been a persistent headache for US sanctions enforcement. These independent facilities, concentrated primarily in Shandong province and along China’s northeastern coast, collectively process millions of barrels daily. They operate with less regulatory oversight than state-owned giants like Sinopec or PetroChina, making them natural buyers for discounted sanctioned crude from Iran, Venezuela, and Russia.
The designation also carries secondary sanctions risk for any international entity doing business with Hengli, potentially cutting the company off from dollar-denominated transactions and Western financial infrastructure.
Hengli pivots to alternative supply
The company appears to already be adapting. Hengli has reportedly secured at least two million barrels of West African crude for near-term delivery, part of a broader pivot toward non-sanctioned supply sources in Western Africa and other Middle Eastern producers.
Companies in the broader petrochemical and refining sectors that have commercial relationships with Hengli may need to reassess their exposure. Secondary sanctions risk means that banks, insurers, and trading houses could face penalties for facilitating transactions with the designated entity.
