China buys more than 80% of Iran's seaborne oil exports, so sanctioning a single Chinese refinery only does so much.
The real pressure point is the banks moving the money, and Treasury has now told two of them they are next if Iranian cash keeps flowing through their accounts.
The Trump administration sanctioned Hengli Petrochemical (Dalian) Refinery on Friday, with Treasury calling Hengli one of Iran's largest customers for crude and refined products.
The Office of Foreign Assets Control also hit roughly 40 ships and shipping companies tied to Iran's "shadow fleet," the network of vessels that move oil under sanctions.
China's embassy in Washington pushed back, saying Washington should "stop politicizing trade and sci-tech issues and using them as a weapon." Last year, the U.S. sanctioned three other Chinese teapot refiners, who kept buying under different names.
Teapot refineries are independent and small, with almost no exposure to the U.S. financial system, which is what makes them hard to break with sanctions.
Sanctions experts have argued for years that the only way to actually choke off Iranian oil is to go after the Chinese banks settling the trades.
Bessent told reporters at the White House on April 15 that Treasury wrote to two Chinese banks warning them about secondary sanctions, with a clear message: prove you do not have Iranian money flowing through, or get cut off from the U.S. dollar system.
Bessent called the strategy a "financial stranglehold" on Iran. The Hengli move is the warning shot, while the banks are the trigger.
Teapots account for about a quarter of China's refining capacity and have been paying premiums over Brent for Iranian oil since the U.S. let a recent waiver expire.
If Treasury follows through on Chinese banks, those buyers run out of ways to pay, which is the move that would actually cut Iranian oil off the market.
The Hengli announcement is a small step on its own. The bank letters are the part that could move the price of crude.
