On April 28, 2026, the US Department of the Treasury’s Office of Foreign Assets Control (“OFAC”) took a series of Iran-related actions as part of the Administration’s “Economic Fury” campaign of exerting maximum pressure against Iran. Specifically, OFAC (1) issued an alert warning of the sanctions risks of dealing with Chinese “teapot” oil refineries that process Iranian crude oil and (2) published FAQ 1249, which warns that “toll” payments to the Government of Iran (“GoI”) or the Islamic Revolutionary Guard Corps (“IRGC”) for passage through the Strait of Hormuz are not authorized and are subject to US sanctions restrictions.
A few days later, on May 1, 2026, OFAC and the State Department designated several entities, an individual, and a vessel involved in the trade of Iranian petroleum, petroleum products, and petrochemical products, adding these parties to the Specially Designated Nationals and Blocked Persons (“SDN”) List. This included Qingdao Haiye Oil Terminal Co., Ltd (“Qingdao Oil”), due to its alleged importation of sanctioned Iranian crude oil since the announcement of National Security Presidential Memorandum 2 on February 4, 2026. Additional information regarding Qingdao Oil’s designation is available in this US State Department press release. Alongside that designation, OFAC issued wind-down General License W (“GL W”) for transactions involving Qingdao Oil.
Alert: Sanctions Risks of Dealing with Teapot Oil Refineries
The alert published by OFAC alerts financial institutions to the sanctions risks of dealing with independent oil refineries in China (known as “teapot” refineries), primarily in Shandong Province, given their alleged role in importing and refining Iranian crude oil. Since March 2025, OFAC has designated multiple teapot refineries which OFAC alleges have collectively purchased and refined billions of dollars’ worth of Iranian oil.
The alert identifies five teapot refineries that have been designated since February 2026:
- Shandong Shouguang Luqing Petrochemical Co., Ltd.
- Shandong Shengxing Chemical Co., Ltd.
- Hebei Xinhai Chemical Group Co., Ltd.
- Shandong Jincheng Petrochemical Group Co. Ltd.
- Hengli Petrochemical (Dalian) Refinery Co., Ltd.
These blocking designations prevent US persons from engaging in transactions with the relevant teapot refineries, including entities owned 50 percent or more by such refineries, unless otherwise exempt or authorized. The alert also warns that foreign financial institutions and other non-US entities risk exposure to US sanctions for engaging in certain transactions or activities involving designated teapot refineries or other actors operating in the Iranian petroleum sector.
OFAC has recommended that financial institutions take several steps, including carefully reviewing any transactions involving China-based teapot refineries, particularly in Shandong Province, given the heightened risk that transactions with these refineries could involve Iranian-origin oil. The alert recommends other proactive steps, including (1) communicating expectations to correspondent banks in China about sanctions risks; and (2) gathering additional information on relevant customers and transactions, including related contracts and other information.
The alert also cautions that sanctions risks related to Iranian oil extends beyond China’s teapot refineries, urging financial institutions to apply enhanced due diligence to Asia‑ and Middle East‑based entities involved anywhere in Iran’s oil supply chain to China. OFAC stated that Iran has relied on front companies, intermediaries, and a “shadow fleet” using deceptive shipping practices – such as ship‑to‑ship transfers, falsified documents, oil blending, and vessel identity manipulation – to broker shipments, process payments, and disguise Iranian‑origin oil as products like “Malaysian blend.”
FAQ 1249: Strait of Hormuz “Toll” Payments
OFAC’s FAQ 1249 warns US and non-US persons about the sanctions exposure related to making “toll” payments to the GoI or the IRGC for passage through the Strait of Hormuz during the ongoing crisis in the Persian Gulf.
More specifically, OFAC stated that payments to the GoI or the IRGC, directly or indirectly, for safe passage through the Strait of Hormuz would not be authorized for US persons, including US financial institutions, or for US-owned or -controlled foreign entities. OFAC noted that such payments also create significant sanctions exposure for non-US persons, given the secondary sanctions risks that stem from engaging in certain transactions or activities involving designated or otherwise blocked persons, including the GoI and IRGC, which are sanctioned pursuant to several authorities.
OFAC has further flagged that foreign persons engaged in certain transactions could risk sanctions exposure under authorities such as EO 13902, which authorizes sanctions on persons who have knowingly engaged in certain significant transactions involving determined sectors of the Iranian economy or who have been determined to operate in those sectors, including the financial and petroleum and petrochemical sectors.
In parallel with efforts to review sanctions compliance in this space, companies should also remain mindful that General License U expired on April 19, 2026. That general license authorized the sale of Iranian‑origin crude oil and petroleum products that were already loaded on vessels on March 20, 2026 (see our blog post), but it expired without being extended or renewed.
General License W: Winding Down Transactions Involving Qingdao Oil
As discussed above, in connection with the designations by OFAC and the State Department, OFAC also issued GL W, which temporarily authorizes transactions ordinarily incident and necessary to wind down transactions involving Qingdao Oil through 12:01am eastern daylight time, on May 31, 2026, provided that any payment to a blocked person must be made into a blocked, interest-bearing account located in the United States. This authorization extends to transactions involving any entity in which Qingdao Oil owns, directly or indirectly, a 50 percent or greater interest, though it does not authorize any transactions otherwise prohibited by EO 13846, including transactions involving other blocked persons.
China’s Response to US Sanctions Measures
In response to the US measures, the Chinese government issued on May 2, 2026, a blocking order pursuant to the Measures for Blocking the Improper Extraterritorial Application of Foreign Laws and Measures (the “Blocking Rules”) prohibiting the recognition, enforcement, or compliance with US sanctions measures adopted under EO 13902 and EO 13846, which designate, among others, Hengli Petrochemical (Dalian) Refining and Chemical Co., Ltd. on the SDN List. The Chinese government stated that this blocking order was issued in order to safeguard China’s national sovereignty, security, and development interests, and to protect the lawful rights and interests of Chinese entities and individuals.
The May 2, 2026 blocking order is the first of its kind since the Blocking Rules came into force in 2021, and is expected to materially intensify the compliance challenges faced by multinational companies, particularly in navigating conflicts between US sanctions obligations and Chinese legal prohibitions, reassessing sanctions‑related decision‑making, contracting, and internal controls involving China‑related operations.
