No way out for Chinese enterprises…Chinese bear the Pain of war in the Middle East

Added: 2026-05-14

[00:00:00]Teapot refinery is the Western media's term for small-scale oil refineries in China, which the Chinese call local refineries. Most are privately owned with small crude oil processing capacity and a limited production range. These refineries are now facing a nightmare as the US takes action to pressure Iran by blocking ports and intercepting oil tankers. It is also targeting the so-called teapot refineries, which absorb almost all of Iran's oil exports.

[00:00:27]This episode focuses on this issue.

[00:00:30]In the struggle between the United States and Iran, the real adversary of the United States has always been the Chinese Communist Party. In this battlefield without gunpowder, US Treasury Secretary Scott Bessent is a badass. Uh the the President Xi Jinping have have discussed Iran on their phone calls. They've exchanged correspondence.

[00:00:49]My counterpart, the Vice Premier, and I have discussed it. Let's Let's see them step up with some diplomacy and get the Iranians to open the street. He said that it will be a chance for President Trump and Xi Jinping to exchange views in person. US President Trump will visit China on May 14th and 15th to meet with the Chinese Communist Party leader. Many are speculating about their discussions.

[00:01:15]The Taiwan issue is seen by the CCP as leverage in negotiations.

[00:01:19]To increase its leverage, the US is using preemptive action to further sever Iran's financial lifeline. This is a task US Treasury Secretary Bessent excels at. China possesses over 100 teapot refineries, which were originally a crucial tool for circumventing US sanctions. The Chinese government outsources its oil trade with Iran to small privately owned refineries independent of China's state-owned oil giants. This allows the Chinese government to support Iran, ensure its oil supply, and balance relations with the US and Middle Eastern countries.

[00:01:51]These Chinese teapot refinery systems act as a financial lifeline for Iran, providing it with hundreds of billions of dollars annually, making them arguably Iran's most critical financial lifeline. On the one hand, according to public information, since 2023, Chinese customs have never listed any oil imports from Iran. On the other hand, it has been noted that the combination of undeclared origin plus shadow fleet plus ship-to-ship transshipment plus final destination China has enabled Iranian crude oil to continue entering China.

[00:02:22]In a sanctions announcement on April 24th, the US Treasury Department stated that China's teapot refineries purchased the majority of Iranian crude oil, providing a significant source of revenue for the Iranian regime and its military. It's estimated that in 2025, 12% of China's oil imports came from Iran.

[00:02:41]Hengli Petrochemical, China's second largest teapot refinery, is one of Iran's largest buyers of crude oil and other petroleum products. The announcement states that since 2023, Hengli Petrochemical has received Iranian oil cargoes through a series of sanctioned shadow fleets of vessels, purchasing billions of dollars worth of Iranian petroleum products. The announcement listed some of the sanctioned vessels supplying Iranian petroleum products to Hengli Petrochemical, stating that just three black ships have delivered over 5 million barrels of Iranian crude oil to Hengli. The announcement also stated that the crude oil purchased by Hengli came from Sepher Energy Jahan Nama Pars Company, an oil sales arm overseen by the General Staff of the Iranian Armed Forces, generating hundreds of millions of dollars in revenue for the Iranian military. On April 27th, Hengli Petrochemical stock price on the Shanghai Stock Exchange plummeted by nearly 10% because the sanctions were announced on Friday, April 24th, the impact of the sanctions was not reflected until the following trading day due to the time difference. As China's second largest teapot refinery, Hengli Petrochemical ranks third among China's top 500 private enterprises.

[00:03:49]This resulted in a decrease of approximately 1.4 billion in the paper wealth of Fang Hongwei, chairwoman of Hengli Petrochemical, and her husband, Chen Jianhua, chairman of Hengli Group, the parent company of Hengli Petrochemical. Wealth indices show that Fang Hongwei's current net worth is 7.7 billion, and Chen Jianhua's is 7.3 billion. This decline wiped out about half of their net worth growth this year. Fang Hongwei and Chen Jianhua have been the richest people in Jiangsu Province, China, since 2022, with the wealth exceeding that of Liu Qiangdong, founder of jd.com. Previously, on April 26, Hengli Petrochemical issued an announcement stating that the company had never engaged in any trade with Iran, and that its crude oil suppliers had promised and guaranteed that the origin of the supplied crude oil was not within the scope of US sanctions, and that the US sanctions lacked factual and legal basis. Hengli emphasized in its statement that it continues to settle crude oil purchases through RMB settlement channels, implying that Hengli has established payment channels independent of the US dollar, such as through the CIPS RMB cross-border payment system. As long as a seller accepts RMB, Hengli's crude oil imports can bypass US financial scrutiny.

[00:05:02]Although Hengli denies any trade with Iran, records from multiple international energy data agencies and shipping monitoring platforms show that while their data cannot track whether Hengli ultimately purchased oil from Iran, it confirms that most of Iran's oil was indeed unloaded at Dalian Port in China. Muyu Xu, a senior crude oil trading analyst at Kepler, told Voice of America that the oil purchased by Hengli might not be directly labeled as originating from Iran on the documents.

[00:05:28]This is because shadow fleets transport Iranian oil through ship-to-ship transshipment, then label the Iranian crude oil as Malaysian or Indonesian blended oil to conceal its true origin.

[00:05:38]She said that many crude oils on the market claim to be Malaysian or Indonesian, but the total volume of these oils exceeds the production of those two countries because they are mixed with a large amount of Iranian oil. Faced with the situation, the CCP could no longer sit idly by. On May 2nd, the Chinese Ministry of Commerce stepped in to support Hengli Petrochemical and issued a blocking order regarding the US sanctions against five Chinese companies involved in Iranian oil, requiring Chinese companies to not acknowledge, not implement, and not comply with the US ban on Hengli Petrochemical, Shandong Shouguang, Liucheng Petrochemical, Shandong Jincheng Petrochemical, and two other companies. This is tantamount to a warning to Chinese companies that they cannot cease doing business with Hengli simply because of US sanctions. Doing so would violate Chinese law. This means Chinese companies will simultaneously face two conflicting legal obligations.

[00:06:31]If you want to avoid being excluded from the US dollar system, you have to comply with US sanctions. But if you do so, you will be accused of cooperating with foreign sanctions, according to the CCP's injunctions. How did this happen?

[00:06:43]Let's understand what secondary sanctions are like by examining Hengli's response. After the US announced sanctions, Hengli immediately took action by adjusting the shareholding structure of its Singapore-based oil trading subsidiary. Within 48 hours of the US announcement, Hengli Petrochemical International, registered in Singapore, was quickly changed to be 95% owned by Dalian Changxing International Trade Company Limited, with Hengli Petrochemical holding 5%.

[00:07:11]Previously, Hengli Petrochemical wholly owned its Singapore subsidiary, while Dalian Changxing was owned by a local Chinese government entity. Hengli hopes its customers will believe that since the Singapore subsidiary is no longer controlled by a US sanctioned entity, it should not be considered a related party and subject to sanctions. However, this is likely wishful thinking on Hengli's part. Hengli's rapid transfer of equity in its Singapore subsidiary is intended to avoid being subject to the 50% rule for its international trade subsidiary.

[00:07:41]The 50% rule is a crucial provision in the US Treasury Department's Office of Foreign Assets Control Sanctions System, a form of extended sanctions. If a sanctioned company holds more than 50% of another company's shares, that company is automatically considered sanctioned without requiring a separate announcement from OFAC. Furthermore, in actual sanction enforcement, OFAC doesn't only consider controlling stakes, but also factors such as actual control, board composition, cash flow, and business dependence to determine the relationship between the sanctioned company and the other. Moreover, banks, shipping companies, insurance companies, and traders may remain cautious when Hengli engages in international trade in the future due to concerns about secondary US sanctions. The US secondary sanctions mechanism allows it to punish any foreign company that engages in significant transactions with a sanctioned entity, even if the transactions occur outside the US, do not use dollars, and do not involve US citizens. This extraterritorial application is the most deterrent part of the US sanctions system. This is why the CCP requires Chinese companies to not recognize, not implement, and not comply with the US bans on five companies, including Hengli Petrochemical, Shandong Shouguang Luqing Petrochemical, and Shandong Jincheng Petrochemical.

[00:08:59]The White House then has responded. If you ignore our sanctions, you're going to face secondary sanctions. And uh I don't have an announcement for you on that today, but we don't do these things, you know, for symbolic purposes.

[00:09:10]Rubio also told reporters that he hopes China tells Iran what it's doing in the Strait of Hormuz is causing to Iran to be globally isolated.

[00:09:18]Uh on the first point about the visit, um it's fine. I hope the Chinese tell him what he needs to be told, and that is that what you were doing in the straits is causing you to be globally isolated. You're the bad guy in this.

[00:09:27]You What you You guys should not be blowing up ships. You should not be putting mines. You should not be holding hostage the global Trying to hold hostage the global economy. I hope the Chinese bring Whether it's done privately, but I hope it's done directly that that's the message they deliver to them. Chinese companies are facing an incredibly difficult situation. If they want to avoid being excluded from the dollar system, they must comply with US sanctions. However, if they don't follow the CCP's instructions, they will be seen as cooperating with foreign sanctions. In fact, Chinese companies and ordinary people are affected by the conflict in Iran. As the US-Israel joint military action against Iran enters a third month, the weaknesses of China's growth model, which relies on low costs and large-scale production, are gradually being exposed. The Chinese economy is facing triple pressures, including energy supply issues, rising manufacturing costs, and difficulties in developing export markets. China's vital energy import pipelines are nearing their limits. China is the world's largest importer of crude oil via the Strait of Hormuz. It can be said that half of China's energy imports are structurally dependent on the sea route.

[00:10:31]After the outbreak of the Iran-Iraq War, by May of this year, this proportion had dropped to 31% and now China imports crude oil from more distant and more expensive Russia and Brazil. The situation regarding refined oil supply is even more severe. Refined oil refers to the final products produced after crude oil is processed in refineries, such as diesel, aviation fuel, and naphtha, commonly known as light oil.

[00:10:54]Diesel fuel is used in trucks and cargo ships, aviation fuel in aircraft, and naphtha is a raw material for plastics and synthetic fibers. All of these fall under the category of refined petroleum products.

[00:11:06]The Middle East share of China's refined petroleum products supply has fallen from 41% in 2025 to less than 1% in May of this year, effectively cutting off the supply altogether. Crude oil can be stored in large underground storage tanks, but refined petroleum products cannot due to their high volatility and rapid degradation, making large-scale storage infrastructure impractical. From January to May of this year, shipments of Middle Eastern liquefied natural gas and liquefied petroleum gas to China also decreased by 43% due to the diversification of crude oil sources and the disruption of Middle Eastern refined petroleum product supplies, Chinese companies are facing rising cost pressures.

[00:11:49]The impact has been quite significant.

[00:11:51]Since March, prices have been surging up about 60% and there is no sign of them stopping. Prices are still climbing and they're going up every day.

[00:12:02]As a modified plastics factory, we usually keep some safety stock before the year end and during normal times, but our inventory has basically all been used up and shipped out. So now all of our raw materials are being bought at current market prices, which are very high. This will soon be passed on to downstream customers and to be honest, the pressure on them is also quite heavy.

[00:12:25]At the peak after March 5, Jangmutou was gridlocked for nearly a week. Traffic jams stretched about 10 to 15 km. Every warehouse was packed to capacity and both inbound and outbound cargo were heavily affected.

[00:12:38]The biggest pain point for China's industry right now lies in petrochemical raw materials. More than half of these basic raw materials used by China's manufacturing industry, such as plastics, synthetic fibers, auto parts and battery materials, need to be imported through the Strait of Hormuz.

[00:12:56]From what we understand from others in the market, the main problem now lies with upstream chemical plants. In perhaps 70 to 80% of cases, they have refused to deliver on previously signed low-price contracts, even though deposits had already been paid and delivery was due, citing force majeure.

[00:13:13]But if we sign contracts with them at higher prices, they do have goods to deliver. Personally, I cannot accept force majeure as the reason.

[00:13:23]The impact on China's plastics industry has been very significant. Gasoline and diesel prices have also risen, pushing up transport costs. So, traders in plastic raw materials have no choice but to raise their prices. And with the Middle East situation unlikely to ease in the next one or two months, panic has driven people to actively stock up.

[00:13:42]Upstream petrochemical plants without crude oil and feedstock to produce with have also been forced to raise their prices.

[00:13:50]Normally, businesses raise prices when costs increase. However, the current sluggish Chinese consumer market is insufficient to absorb price increases.

[00:13:58]Following the bursting of China's real estate bubble, consumer confidence has yet to recover to pre-2021 levels. Even in major cities like Beijing and Shanghai, housing prices continue to fall. This year, warning signs have emerged regarding exports, a crucial pillar of China's economy. This is because the Strait of Hormuz's impact is not limited to China. Asian countries with smaller economies are also facing severe challenges due to the energy shortages in the Middle East. In April, total Asian crude oil imports plummeted by 30% compared to the same period last year. The Asian Development Bank ADB lowered its economic growth forecast for developing Asian countries this year from 5.1% to 4.7%, implying a decline in purchasing power in Southeast Asia, the Middle East, and emerging economies, regions that were once major buyers of Chinese home appliances, electric vehicles, and industrial products.

[00:14:50]Meanwhile, the United States remains China's largest export market. If American consumers drastically reduce their purchases of Chinese products, China's economy could collapse quickly.

[00:15:00]US Treasury Secretary Benson is well aware of this.

[00:15:03]US Treasury Secretary Benson is well aware of this.

[00:15:09]The price of raw materials has risen by 20%. The US dollar is depreciated again.

[00:15:14]It's a bit difficult for foreign trade companies right now. Hopefully, the war will end soon.

[00:15:20]The CCP does not equal China. The CCP is an organization that leeches off the Chinese people, hijacking and enslaving them while transferring the pain of its own mistakes and sins onto the Chinese.

[00:15:32]Therefore, Chinese entrepreneurs, ordinary Chinese people, and political leaders in Western countries need to understand this. Only by abandoning and dismantling the CCP, removing the biggest cancer on Earth, will many troubles and suffering disappear. In the upcoming Trump-Xi meeting, whether history has taken a step in this direction, let's keep an eye on it.

[00:15:54]That's all for today. If you enjoy our content, please give [music] us a thumbs up, subscribe, leave a comment, or share it with a friend. We appreciate your support, [music] and we'll see you next time.

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