Strike Three: Will US sanctions on China hit Iran’s oil flow harder?

The third wave of U.S. sanctions targeting Chinese oil refineries and terminals appears more forceful than the previous two. But the key question remains—will it truly choke off Iran’s crude exports to China?

Key Takeaways:

• Hebei Xinhai has a larger nameplate refining capacity than the two previously sanctioned teapots and is a major importer of Iranian and Venezuelan crude.
• Baogang International and Jingang operate a 100,000 DWT crude import berth in Dongying, while Haixin—which has not yet been sanctioned—operates two berths of the same size.
• The previously sanctioned teapots remain operational, though the targeted oil terminals have kept a low profile.
• The market remains sceptical about how effective U.S. sanctions will be in curbing China’s purchases of Iranian oil.

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The Trump administration on Thursday imposed sanctions on a third Chinese independent refiner—Hebei Xinhai Chemical Group—and two companies operating a terminal at Shandong’s Dongying Port, along with a handful of oil tankers and trading firms allegedly linked to the transport, receipt, and procurement of Iranian crude. The move, coming just two days before the US-China trade talks, once again sent shockwaves through the market, as the entities targeted this time are significantly larger players in the industry than those sanctioned previously.

Located about 250 km south of Beijing, Hebei Xinhai has a nameplate crude refining capacity of 120 kbd and a bitumen production capacity of 5 mn tonnes. In comparison, Shouguang Luqing (the first sanctioned refinery) has a nameplate capacity of 60 kbd, while Shengxing Chemical (the second) operates at 76 kbd. The refinery has been a major importer of Iranian and Venezuelan crude for its operations, but it supplies refined fuels and bitumen almost exclusively to the domestic market. While the refinery operates its own oil receiving terminal at Huanghua Port, which can accommodate Aframax tankers, most of its crude cargoes come from the nearby Tianjin Port, with the rest arriving from ports across Shandong.

Playing a vital role in the local economy with annual sales revenue exceeding $12 billion, Hebei Xinhai has invested $3.5 billion to upgrade its refining system, enabling it to produce petrochemical products such as aromatics, olefins, and butylene. Construction of the project began in May 2024, with operations expected to commence in 2026.

Meanwhile, the U.S. added Shandong Baogang International Port Co. and Shandong Jingang Port Co. to OFAC’s SDN list. The two companies are connected through shared ownership and jointly operate a liquid bulk terminal in Dongying, which includes a 100,000 DWT crude oil berth and a 100,000 DWT LPG berth. Since January, Dongying in Shandong province has emerged as the largest hub in China for receiving crude oil transported by U.S.-sanctioned tankers, after the state-owned Shandong Port Group imposed a preemptive self-ban on handling such vessels at its other ports. With Baogang International and Jingang now under sanctions, Shandong Haixin Port Co. in Dongying remains one facility still available to receive U.S.-sanctioned vessels. Haixin currently operates three 100,000 DWT crude oil berths—two designated for international cargoes and one for domestic shipments.

However, the market is now questioning whether the U.S. sanctions will halt Dongying’s intake of sanctioned vessels—and whether Chinese refiners will be further discouraged from making such purchases. While it remains premature to speculate on the fate of Baogang International and Jingang, the current status of Chinese entities targeted in previous sanction rounds may offer some insight. Kpler data shows no Iranian oil cargoes have been discharged at the Huizhou Huaying Oil Terminal or the Huangzeshan Terminal since the U.S. sanctions were announced. Nonetheless, the two sanctioned teapots—Luqing and Shengxing—remain operational. However, they are now barred from receiving crude through terminals managed by Shandong Port Group and are unable to sell refined products to state-owned companies.

Market insiders told Kpler that trades for Iranian crude oil scheduled to arrive in June are still ongoing, with Iranian Light crude pricing around $2/bbl below ICE Brent on a DES Shandong basis, down slightly by about $0.20/bbl from last month.

China’s imports of Iranian crude/co by destination port, kbd

Source: Kpler

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