China’s financial regulators have quietly instructed the country’s largest state banks to stop extending new loans to refineries sanctioned by the United States for processing Iranian crude oil. The move, reported by Reuters and Bloomberg, reveals the gap between Beijing’s combative public posture on sanctions and the private calculations of a financial system that cannot afford to be cut off from the US dollar.
China’s banking regulator orders lenders to stop financing Iran-linked refineries.
China’s National Financial Regulatory Administration, the Party-controlled body that oversees the country’s banking sector, has issued verbal guidance to major domestic lenders directing them to suspend new yuan-denominated loans to five refining companies sanctioned by the U.S. Treasury for purchasing Iranian crude oil in violation of Washington’s Iran sanctions regime.
The directive also instructs banks to reassess their existing exposure to those firms. Regulators have stopped short, for now, of demanding that banks call in outstanding loans, focusing instead on cutting off any additional financing.
The companies caught in the freeze include the refining operations of Hengli Petrochemical, one of China’s largest private refinery groups, as well as several so-called “teapot refineries,” independent processors concentrated in Shandong province that have served as the primary conduit for discounted Iranian crude into China.
Washington’s pressure campaign on Iran’s oil export network has intensified in recent months. The U.S. Treasury has warned foreign companies and financial institutions that handling transactions tied to Iranian oil sales could trigger secondary sanctions, cutting them off from the U.S. financial system and dollar-clearing networks. The Treasury has specifically named certain Chinese banks as at risk if they continue to facilitate Iran-related oil payments.
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Beijing publicly ordered firms to defy sanctions while privately ordering banks to comply
Just days before the banking regulator issued its quiet directive, China’s Commerce Ministry publicly invoked the regime’s Counter-Foreign Sanctions Law, a piece of legislation Beijing uses to push back against foreign economic pressure, ordering Chinese companies to refuse to comply with U.S. sanctions targeting the same refineries. The ministry declared the American measures a violation of international law, a characterization Washington disputes.
The two signals point in opposite directions. The Commerce Ministry told Chinese firms to stand firm. The financial regulator told Chinese banks to pull back. Beijing issued both instructions simultaneously, leaving businesses to navigate the gap.
Beijing maintains its public opposition to what it calls unilateral American sanctions, protecting its standing with Tehran while appeasing domestic nationalist audiences. Behind that stance, financial regulators quietly reduced the exposure of major state banks to the risk of being frozen out of dollar-denominated settlement systems. The reason is structural: China’s large financial institutions remain deeply integrated into the dollar-based international payments network, and being cut off from that system would carry costs that no amount of sovereignty rhetoric can absorb. For China’s big banks, the threat of U.S. secondary sanctions is immediate and far more consequential than the Commerce Ministry’s legal objections.
Several of the refineries caught up in the sanctions have already begun adjusting how they do business: sourcing crude under alternative names, rerouting product sales, and restructuring supply chains to reduce their visible exposure. The financing squeeze will add further pressure to those workarounds.
