How China secretly funds Tehran – and the US plan to crackdown on sanctions evasions

Trump administration sets its sights on secret Chinese oil trade which has funneled tens of billions of dollars to Iran, in defiance of American sanctions.

By David Rosenberg, World Israel News

A massive refinery complex on an island off China’s northeast coast has emerged as a symbol of the largely hidden oil trade that has provided Iran with tens of billions of dollars despite years of US sanctions — and is now becoming a central target in Washington’s effort to financially isolate Tehran.

Hengli Group is little known outside China, but the privately owned industrial conglomerate employs hundreds of thousands of people and reports more than $100 billion in annual revenue from businesses ranging from petrochemicals and textiles to shipbuilding.

Its refinery on Changxing Island is one of the largest privately owned refining operations in China.

US officials say it is also one of Iran’s biggest customers.

The Treasury Department sanctioned Hengli Petrochemical’s Dalian refinery in April, accusing it of purchasing billions of dollars of Iranian petroleum and receiving crude carried by sanctioned tankers operating in Iran’s so-called shadow fleet.

Treasury called Hengli China’s second-largest independent “teapot” refinery and “one of Tehran’s most valued customers.”

The case highlights how Iran has managed to keep earning substantial oil revenue despite being largely shut out of conventional Western financial and shipping networks — and why the Trump administration is now considering escalating its campaign beyond individual tankers and refiners to the Chinese banks, currency exchanges and international companies that make the trade possible.

Treasury Secretary Scott Bessent signaled last week that a new phase of the pressure campaign was approaching.

“Watch this space for more announcements coming next week,” Bessent said Thursday, promising measures unlike those previously used against Iran.

The administration is examining measures ranging from sanctions against major Chinese financial institutions to a broader campaign against Iran-linked currency exchanges and the infrastructure supporting its shadow tanker fleet, according to reporting by Reuters.

Washington could also expand secondary sanctions, effectively forcing foreign banks and companies to choose between doing business with Iran and maintaining access to the US financial system.

At the center of Iran’s sanctions-resistant economy is China, which according to independent estimates accounts for between 80% to 90% of Iran’s crude oil exports.

Much of that trade passes not through China’s giant state-owned oil companies but through scores of privately controlled independent refineries known as “teapots.”

That distinction is critical to the system’s durability.

Large Chinese state-owned companies and banks have extensive international operations and much to lose if they are locked out of dollar markets or sanctioned by Washington.

Many teapot refineries, by contrast, have limited exposure to the United States and are consequently more willing to buy heavily discounted sanctioned crude.

The US-China commission said Iranian oil sold into China during 2025 frequently carried a discount of roughly $8 to $10 a barrel.

The Wall Street Journal reported that Hengli and other refiners have obtained sanctioned Russian and Iranian crude at discounts reaching 25%, giving buyers a powerful financial incentive to assume the sanctions risk.

Hengli has denied the US accusations, saying that it has never traded with Iran.

Following its April designation, the company said it “resolutely opposes such groundless allegations” and US “illegal unilateral sanctions.”

Reuters reported that Hengli’s publicly traded petrochemical company fell 10% after the US designation.

Iran’s ability to sell the oil depends on another clandestine network: hundreds of tankers, shell companies, brokers and intermediaries designed to obscure where crude originates and where it ultimately goes.

The US Treasury says the vessels use tactics including falsified documents, ship-to-ship transfers, manipulation of vessel identities and interference with Automatic Identification System transmissions, which normally allow ships to be tracked.

Treasury also alleges that Hengli received more than five million barrels from three sanctioned vessels beginning in 2023 and bought shipments controlled by an oil-sales arm of Iran’s Armed Forces General Staff, generating hundreds of millions of dollars for the Iranian military.

The Trump administration is now considering attacking several layers of the network simultaneously.

One of the most consequential options would be targeting major Chinese banks involved in processing Iran-related transactions.

The US has so far concentrated heavily on smaller Chinese and Hong Kong entities.

Reuters reported Sunday that Treasury has warned two larger Chinese banks about possible secondary sanctions if Iranian money is found flowing through their systems but has stopped short of blacklisting them.

Sanctioning a major Chinese lender would represent a far more serious confrontation with Beijing.

A large bank with extensive international operations could face a choice between handling Iranian commerce and retaining access to the dollar-based financial system.

Selling the oil is only half of Iran’s problem.

Tehran must also turn the proceeds into money that Iranian companies, government institutions and military organizations can actually use.

That has produced what Treasury describes as a shadow banking system built around currency exchanges, front companies and intermediaries stretching through China, Hong Kong, Turkey and the United Arab Emirates.

Because Iranian oil sales to China can generate payments in yuan rather than dollars, exchange houses and trading companies are used to move, convert and repatriate the funds.

Washington has already begun attacking that network.

In May, Treasury sanctioned Amin Exchange, an Iranian currency exchange business it accused of overseeing hundreds of millions of dollars in transactions for sanctioned Iranian banks. Treasury also targeted related front companies in Hong Kong, mainland China, Turkey and the UAE.

Treasury says Iranian exchange houses collectively facilitate billions of dollars in foreign-currency transactions each year, allowing Tehran to move proceeds from oil and petrochemical exports despite restrictions on its banks.

Ynet reported that the administration is considering expanding the campaign against such exchanges, particularly those operating through the UAE and Dubai.

Treasury says it therefore intends to target both conventional sanctions-evasion mechanisms and cryptocurrency networks.

A similar change could be coming at sea.

Rather than simply adding individual Iranian-linked tankers to sanctions lists, Washington could widen its focus to the port terminals, ship managers, insurers, brokers and other companies that make shadow-fleet operations possible.