Skip to content
Welcome, thoughtbot's Giant Robots listeners!Start here
Russia-Ukraine War 2026
12OCT

China activates 2021 Blocking Rules against OFAC

3 min read
10:59UTC

Beijing's MOFCOM named five refineries as legally barred from honouring OFAC's Iran sanctions, the first activation of the 2021 statute and the first Chinese countermeasure to outpace Brussels.

ConflictDeveloping
Key takeaway

Beijing has armed Article 9 of the Blocking Rules; the first foreign bank to test it will set the precedent.

MOFCOM, China's Ministry of Commerce, activated its 2021 Blocking Rules for the first time on Saturday 2 May, naming five refineries as legally barred from honouring OFAC's Iran designations: Hengli Petrochemical (Dalian), Shandong Shouguang Luqing, Shandong Jincheng, Hebei Xinhai and Shandong Shengxing⁠1. The order took immediate effect. The Blocking Rules are China's Order No. 1 of 2021, a statute that prohibits Chinese firms from complying with foreign sanctions; OFAC is the US Treasury's Office of Foreign Assets Control, which administers Iran sanctions through bulletin codes such as SB0472. Article 9 of the Rules creates a private cause of action in Chinese courts: any Chinese company that complies with the listed designations can be sued for damages by the sanctioned counterparty.

Hengli was OFAC-designated under SB0472 on 24 April with a wind-down clock under General License V (GL-V) that expires on 24 May. Twelve days before the activation, Hengli transferred 95% of its Singapore arm to a Chinese state entity to soften the blow. Beijing's posture has stepped two rungs higher in twelve days, moving from quiet corporate restructuring to formal legal prohibition. China simultaneously holds the United Nations Security Council presidency for May 2026; on the same day, the Council president called for 'good-faith' US-China negotiations on Iran⁠2.

The five named firms are independent 'teapot' refineries that account for a meaningful share of Chinese plants buying Iranian crude. The mechanism runs through commercial liability: any bank, insurer or freight forwarder that turns away their cargoes faces compensation claims in Chinese courts. The European Union's own Blocking Statute, Regulation 2271/96, has never been invoked against the current Iran sanctions cycle, so Beijing now sits ahead of Brussels in legal posture against the Trump administration's enforcement track. The first multinational to test Article 9 in court will set the precedent for everyone else.

Deep Analysis

In plain English

China's government has a law that bars Chinese companies from obeying American sanctions when it chooses to activate it. On 2 May it activated that law for the first time, naming five Chinese oil refineries that would face legal penalties in China if they followed US Treasury orders to stop buying Iranian oil. The US had told these refineries they had until 24 May to wind down their Iran business or face further sanctions. Now any Chinese company that complies with the US order can be sued in a Chinese court. It puts the refineries in an impossible position: break US law, or break Chinese law. The outcome matters because these refineries process a large share of the Iranian oil that funds Tehran's war effort.

Deep Analysis
Root Causes

Three structural drivers converge in this event. First, China's 2021 Blocking Rules were passed precisely because Beijing anticipated future US secondary-sanctions pressure after the 2020 OFAC designations of Huawei affiliates; the Iran designation of Hengli in April 2026 triggered the exact scenario the law was drafted for.

Second, Hengli's 95% Singapore arm transfer to a Chinese state entity twelve days before activation created a legal grey zone: OFAC's GL-V wind-down addressed a privately held entity that now no longer exists in its pre-designation form. MOFCOM's order converts that grey zone into a formal barrier.

Third, China holds the UN Security Council presidency for May 2026 and was already on record calling US Iran sanctions 'illegal unilateral measures'. Activating the Blocking Rules while holding the rotating presidency gives Beijing simultaneous legal, diplomatic, and multilateral cover for a posture it could not safely hold in February.

What could happen next?
  • Consequence

    US firms with China operations face liability in Chinese courts if they facilitate OFAC enforcement against the named refineries, creating a chilling effect on US secondary-sanctions compliance chains.

    Short term · 0.75
  • Risk

    If OFAC attempts enforcement against a Chinese state-owned entity after the 24 May GL-V expiry, and China's courts respond with a damages award against a US-linked firm, the bilateral sanctions architecture enters uncharted legal territory.

    Medium term · 0.55
  • Precedent

    The first activation of any country's blocking statute against a live US secondary-sanctions framework establishes a template other states with analogous legislation (notably Russia and Iran) will monitor for replication.

    Long term · 0.7
First Reported In

Update #87 · China blocks OFAC; Iran writes; Trump tweets

Global Times· 3 May 2026
Read original →
Different Perspectives
Government of Latvia
Government of Latvia
Latvia abstained on 22 September when the EU renewed its individual sanctions for 36 months at the price of delisting Alisher Usmanov and Mikhail Fridman, and promised national sanctions of its own. Riga's abstention marks how far a frontline member state will go to keep listed names listed.
India's Ministry of External Affairs
India's Ministry of External Affairs
After the House passed the Graham bill on 16 September, India's foreign ministry said it would keep buying energy on market terms and protect its trade. Russia supplied 30.3% of India's crude imports in fiscal 2026, so the tariff decision due around 18 October falls directly on New Delhi.
Kaja Kallas, EU foreign policy chief
Kaja Kallas, EU foreign policy chief
Kallas answered the US licence on 10 October by saying Europe would not ease pressure, and EU ministers adopted a 22nd package of nearly 1,600 listings two days later. Brussels is tightening as Washington loosens, though TASS reported the package adds no significant new trade restrictions.
Donald Trump and the US Treasury
Donald Trump and the US Treasury
The Treasury licensed Russian diesel imports until 7 April 2027 on the day of Trump's call with Putin, and Trump then told reporters Ukraine should find a new leader. Washington is trading sanctions relief for fuel supply while pressing Kyiv to halt the refinery strikes behind the shortage.
Kremlin and Deputy Prime Minister Alexander Novak
Kremlin and Deputy Prime Minister Alexander Novak
After the 9 October call the Kremlin said Russia was ready to supply oil and petroleum products to American and global markets, and Novak brought forward the end of diesel export curbs. Moscow is selling the shortage back as goodwill, with volumes that Decree No. 686 now hides from outside checks.
Volodymyr Zelenskyy, President of Ukraine
Volodymyr Zelenskyy, President of Ukraine
Zelenskyy called GL 135 an investment in prolonging the war and offered to stop striking Russian refineries if Russia stops destroying Ukraine's energy system. Answering Trump's call for a new leader, he set a total 60-day ceasefire as the condition for elections, which puts the next move on Moscow.