China Halts New Bank Loans to US-Sanctioned Refiners

• The National Financial Regulatory Administration issued verbal guidance before May 1 to suspend new yuan-denominated loans but not call in existing credit to the sanctioned refiners
• The directive contrasts with China's Commerce Ministry notice from May 2 asking firms to dismiss the sanctions, marking the first use of blocking measures introduced in 2021
• U.S. Treasury sanctioned Hengli Petrochemical in April for purchasing billions in Iranian oil, with Treasury Secretary Bessent warning banks processing Iran transactions face secondary sanctions

Summary: China Halts New Bank Loans to US-Sanctioned Refiners

China's National Financial Regulatory Administration (NFRA) has instructed major Chinese banks to temporarily suspend new yuan-denominated loans to five refineries recently sanctioned by the United States over their ties to Iranian oil, according to Bloomberg News on May 6.

Key Details:

• The verbal guidance, issued before May 1, directs banks to halt new lending but not call in existing credit
• Affected companies include Hengli Petrochemical (Dalian) Refinery, China's largest private refiner
• In April, the U.S. Treasury sanctioned Hengli for allegedly purchasing billions of dollars in Iranian oil as part of Washington's efforts to restrict Tehran's oil revenue

Regulatory Contradiction:

The NFRA's directive contrasts sharply with guidance from China's Ministry of Commerce issued May 2, which asked firms to dismiss the U.S. sanctions. This marks the first time China has deployed blocking measures—introduced in 2021 to protect Chinese firms from foreign interference.

Market Impact:

• U.S. Treasury Secretary Scott Bessent warned last month that banks processing transactions with Iran would face secondary sanctions, though specific institutions weren't named
• Sanctioned refiners face operational challenges including difficulties receiving crude oil and selling refined products, forcing them to operate under different names
• The situation highlights escalating U.S.-China tensions over Iran policy and energy trade

Sector Affected:

Chinese refining and petrochemical sector, particularly private refiners with Iranian supply chains.

The conflicting guidance from Chinese regulators reflects Beijing's difficult balancing act between protecting domestic companies and avoiding exposure to U.S. financial sanctions.