President Trump’s meeting with President Xi Jinping in Beijing has brought renewed attention to the Strait of Hormuz, Iranian oil flows, and the position of Chinese companies involved in that market. Reports that certain Chinese vessels may transit following an understanding with Beijing, and that possible relief for Chinese companies has been discussed, are commercially relevant. They do not, however, answer the legal question: whether restricted trade can be structured, financed, insured, and defended under the applicable legal framework.

Market access is not legal certainty

A route may become more accessible before the legal position becomes clear. 

Iranian-origin oil remains a high-risk area because legal exposure may attach not only to the cargo, but also to the surrounding transaction chain. The analysis may extend to cargo origin, ownership and control, payment routes, service providers, and the persons ultimately benefiting from the transaction.

This is particularly important where temporary authorisations have expired. OFAC General License U authorised certain transactions relating to Iranian-origin crude oil and petroleum products already loaded on vessels as of 20 March 2026, but only until 19 April 2026. Once that period ended, unfinished transactions no longer benefited from that limited safe harbour.

Iranian oil is a transaction chain risk

Recent U.S. measures show that enforcement attention is focused on the commercial infrastructure around Iranian oil, not only on the immediate buyer or seller.

OFAC’s April 2026 alert warned financial institutions about dealings with China-based independent refineries, known as “teapot” refineries, particularly in Shandong Province. OFAC stated that China acquires around 90 percent of Iran’s oil exports, with teapot refineries purchasing the majority of that oil. The alert also identified common evasion methods, including front companies, ship-to-ship transfers, vessel location data manipulation, forged documents, relabelling, blending, and high-risk intermediaries.

The practical point is clear. Name screening alone is no longer sufficient. A transaction review must follow the cargo, the vessel, the funds, the services, and the ownership structure. A clean direct counterparty may not resolve the risk if other elements of the transaction suggest restricted trade, disguised origin, concealed control, or a sanctioned benefit.

The same logic may also apply indirectly where suppliers, intermediaries, or payment channels are linked to restricted inputs, concealed financing, or Iran-related procurement.

China exposure creates a conflict-of-laws problem

China is central to the commercial reality of Iranian oil. 

On 11 May 2026, the U.S. Treasury announced measures against three individuals and nine entities for their alleged roles in enabling the IRGC’s sale and shipment of Iranian oil to China. Treasury stated that the IRGC uses front companies in permissive jurisdictions to obscure its role in oil sales and channel revenue back to Iran. It also warned that foreign companies and financial institutions may face exposure where they facilitate certain Iran related activity.

At the same time, China has reportedly invoked its anti-sanctions law to counter U.S. measures against certain oil refiners, including Hengli Petrochemical, over alleged purchases of Iranian crude. That creates a real issue for multinational businesses, banks, insurers, trading companies, and private structures operating across legal systems.

Recent discussion of possible relief for Chinese companies does not change that analysis unless and until it is reflected in a formal legal measure, licence, delisting, or other binding authorisation. Until then, counterparties still need to assess the transaction against the rules in force at the time of performance.

The position is further complicated by conflicting regulatory and banking signals in China. Public reporting has indicated that Chinese financial regulators advised major banks to pause new yuan-denominated loans to certain U.S.-sanctioned refiners, while the Ministry of Commerce had separately asked firms to disregard the U.S. measures. That tension illustrates the difficulty of operating where legal, banking, and policy signals do not point in the same direction.

Due diligence now follows the movement of value

FinCEN’s May 2026 alert reinforce the same direction of travel. It describes how front companies, exchange houses, shadow banking networks, service providers, digital assets, and non-traditional payment channels may be used to move proceeds linked to Iranian oil sales and procurement networks.

The digital-asset point is best understood as part of the payment analysis. The concern is how value moves between exchange houses, front companies, service providers, and cross-border payment flows.

For clients, due diligence must address how value moves, not only who appears on the contract. The review should consider the vessel’s movements, how the cargo was sourced, how the documents were prepared, how the price was paid, which banks or intermediaries were involved, and whether the transaction makes commercial sense.

Legal review protects the evidential position

In restricted markets, legal advice is not limited to confirming whether a name appears on a list. Its function is to test whether the transaction can proceed, whether it should be restructured, whether enhanced diligence is required, whether contractual protections are sufficient, and whether the commercial opportunity justifies the regulatory exposure.

That review should normally cover the parties, ownership and control, cargo origin, vessel history, payment route, insurance cover, contractual protections, and any local blocking-law exposure.

It should also test the transaction against practical questions. Will a bank process the payment? Will an insurer maintain cover? Can the client terminate if a counterparty is designated? Can the origin of the cargo be evidenced? Can the source of funds be explained? Can the structure withstand scrutiny from a regulator or court?

Restricted trade requires defensible decisions

The recent U.S.-China discussions may affect commercial assumptions around Hormuz and energy flows. They do not, by themselves, alter the legal treatment of restricted trade.

For businesses, the immediate task is to avoid treating market access as legal certainty. In high-risk energy and shipping transactions, the decisive question is not whether the transaction can move quickly. It is whether, once executed, it can be justified, documented, financed, insured, and defended.

Sources:

Reuters, “Trump: spoke with Xi about lifting sanctions on Chinese companies that buy Iranian oil.”

Reuters, “Iran allowing transit of Chinese vessels in Strait of Hormuz, Fars news reports.”

Reuters, “China invokes anti-sanctions law to counter US blacklisting of refiners.”

Reuters, “China asks banks to pause new loans to US-sanctioned refiners, Bloomberg News reports.”

OFAC, “General License U: Authorizing the Delivery and Sale of Crude Oil and Petroleum Products of Iranian-Origin Loaded on Vessels as of March 20, 2026.”

OFAC, “Sanctions Risk of Dealing with Teapot Oil Refineries,” 28 April 2026.

U.S. Department of the Treasury, “Economic Fury Ramps Up Pressure on Iran’s Islamic Revolutionary Guard Corps Oil Operations,” 11 May 2026.
FinCEN, “Alert on the Use of Front Companies and Shadow Banking Networks by the IRGC,” May 2026.