Beijing has told its companies to ignore American sanctions on a major oil refiner, complicating the leaders’ summit next week.
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Oil storage tanks at a petrochemical production base on the outskirts of Shanghai. Source: Bloomberg
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US President Donald Trump’s expected meeting with his Chinese counterpart Xi Jinping next week just got a lot trickier.
Late last month, the US raised the heat on Iran and China simultaneously, sanctioning one of the latter country’s largest private refiners over its oil purchases — then repeatedly threatening banks and other firms involved with the sector.
China has now responded by telling its companies to .
This is an unprecedented act of defiance for a nation that has long displayed extreme caution with regard to US restrictions — and comes with lessons for the market.
First and foremost, the move demonstrates the importance of Hengli Petrochemical (Dalian) Refinery Co. and of the broader private refining sector during a historic supply crisis.
Almost nothing matters more to China’s leadership than energy security, and private refiners have been vital to keeping fuel supply coming through the past weeks — in part thanks to millions of barrels of Iranian crude.
Beijing’s response is also a reminder of the growing clout of the private refining sector. This is not just an army of small, cash-strapped teapots in the northern province of Shandong.
By targeting an influential, , Washington has struck the second-largest player in a private refining sector that now makes up as much as a third of China’s oil processing capacity.
Finally, China’s resolve is testament to Beijing’s belief in its own resilience — and in the weakness of a US sanctions system already bruised by Washington’s vacillation on Iranian and Russian oil during the conflict in the Persian Gulf.
In the past, China has often used smaller regional banks to concentrate transactions and risk. Workarounds are already common, and have become increasingly sophisticated. These will continue to evolve as large banks find a way to manage Beijing’s priorities at home and abroad — including with yuan transactions and a domestic settlement system.
Beijing is testing the limits of the US sanctions system and providing itself with another lever to pull in negotiations. Xi has also left clear that energy security is a red line Washington cannot cross.
—Rong Wei Neo, Bloomberg News
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