China Instructs Banks to Halt Lending to US-Sanctioned Refineries Amid Iran Oil Crackdown
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BEIJING — China's financial regulator has reportedly instructed the nation’s largest banks to temporarily suspend fresh lending to five domestic refineries targeted by recent United States sanctions for their alleged links to Iranian crude imports.
The directive from the National Financial Regulatory Administration (NFRA) requires lenders to reassess their commercial exposure to the affected entities, including Hengli Petrochemical (Dalian) Refinery Co., one of the country’s most prominent private refiners. While banks have been privately advised to withhold new yuan-denominated loans, they were explicitly instructed not to demand the immediate repayment of existing credit facilities.
Context and the Threat of Secondary Sanctions
The regulatory move follows an intensified effort by the US administration to curtail Iranian oil exports, a crucial revenue stream for Tehran. Late last month, the US Treasury Department’s Office of Foreign Assets Control (OFAC) sanctioned Hengli and four other entities. Furthermore, US Treasury Secretary Scott Bessent confirmed that warning letters were dispatched to two unnamed Chinese banks, cautioning them against facilitating transactions linked to Iran under the threat of secondary sanctions.
A Delicate Balancing Act
The NFRA's internal guidance, issued just before the extended May 1 holiday, stands in stark contrast to the public posture adopted by China’s Ministry of Commerce. On May 2, the ministry urged domestic firms to disregard the US measures, marking the first formal invocation of a 2021 blocking mechanism designed to shield Chinese businesses from foreign extraterritorial sanctions.
This dual approach underscores a complex geopolitical balancing act for Beijing. While publicly pushing back against the Trump administration's unilateral sanctions, the Chinese government is simultaneously manoeuvring to protect its systemically critical state-owned banks—such as Industrial & Commercial Bank of China Ltd., Agricultural Bank of China Ltd., China Construction Bank Corp., and Bank of China Ltd.—from losing vital access to the US dollar clearing system. Bloomberg data indicates that these top lenders had extended loans to Hengli as recently as 2018.
This strategic calibration comes amid heightened diplomatic friction, occurring mere days before an anticipated high-stakes meeting between US President Donald Trump and Chinese President Xi Jinping in Beijing, scheduled for May 14-15.
Historically, major Chinese state-owned lenders have quietly complied with US sanctions related to Iran and North Korea to safeguard their global operations, often relegating sanctioned transactions to specialized, isolated subsidiaries like the Bank of Kunlun.
Our Final Thoughts
Beijing’s latest directive reveals the pragmatic limits of its anti-sanctions blocking statute. Despite fierce public rhetoric condemning Washington's unilateral measures, China's overriding economic priority remains the integration and protection of its major state-owned banks within the global dollar-dominated financial system. By discreetly curbing loans to the targeted refineries, Beijing is attempting to de-escalate immediate financial friction ahead of the critical Trump-Xi summit, ensuring broader bilateral trade negotiations are not derailed by secondary sanctions on its banking sector.