Teapot refiners handled practically all of China’s $30 billion in Iranian oil
The U.S. Treasury sanctioned Hengli Group’s refinery business in April, saying the Chinese petrochemical and textile company bought billions of dollars’ worth of Iranian petroleum. Hengli, one of China’s largest private companies, has said it complies with relevant regulations in the regions where it operates and has never engaged in any trade with Iran.
Hengli — whose name in Chinese means “eternal strength” — employs more than 300,000 people and records revenue north of $100 billion a year, more than Tesla or Boeing, according to the company’s website. Its operations span petrochemicals, textiles and shipbuilding.
U.S. officials say Hengli is one of the biggest players in a vast ecosystem of “teapot” refineries in China that for years have been buying sanctioned oil. China’s purchases of Iranian oil topped more than $30 billion last year, soaking up nearly all the country’s exported petroleum, according to a March report by the U.S.-China Economic and Security Review Commission. China’s imports of Iranian oil are estimated to have more than doubled between 2017 and last year, to roughly 1.4 million barrels a day, according to commodity research firm Kpler. Practically all of the country’s Iranian imports were handled by teapots, the Treasury says.
The April action targeted only Hengli’s refining unit, leaving the company’s other businesses untouched. Hengli said it “resolutely opposes such groundless allegations” and described the move as “illegal unilateral sanctions” imposed by the U.S. In a bond prospectus, the company said its crude oil is mainly sourced from the Middle East, including from Saudi Aramco and other companies it didn’t name.
People familiar with the company’s operations say Hengli has been buying sanctioned oil since at least late 2020, with purchases expanding after Russia’s invasion of Ukraine in 2022. They said the company turned to cheaper sanctioned crude in part because its petrochemical business carries a heavy debt load, and that it relies heavily on Russian and Iranian crude, sometimes buying at up to a 25% discount to market prices.
China’s Commerce Ministry publicly told companies in May not to comply with the U.S. blacklisting of several Chinese refineries, including Hengli, over alleged purchases of Iranian oil. China’s Foreign Ministry has previously said it is unaware of any oil trade between China and Iran and that it firmly opposes what it considers to be “illegal and unreasonable unilateral sanctions.”
The company’s founders built it from a small textile operation. Chen Jianhua, Hengli’s founder and chairman, is one of China’s richest men, with an estimated fortune of $20 billion, up from $2 billion around a decade ago, according to Forbes. His wife, Fan Hongwei, who chairs the petrochemical and refining business, has a net worth of over $5 billion. Chen has said he grew up in a silk-weaving town in eastern China, dropped out of school at 13 unable to pay the fees, and later entered the silk trade, where he met Fan, an accountant at a state-owned textile mill. The couple eventually bought a bankrupt silk-weaving factory, Chen said in a speech last year. “Only by not being controlled by others and not being chokeheld leads to sustainable development,” he told the Chinese Newspaper Association.
Hengli’s refining complex sits on the remote island of Changxing in northeastern China. The petrochemical and refining industrial park spans 2.3 square miles — just shy of two Central Parks — with annual revenue of $30 billion, making it one of China’s five largest such parks. Chen has said he lived on the construction site, which initially had no electricity, water or cellphone signal, for four years. In 2019, China’s then-premier, Li Keqiang, visited the site and asked Chen, “What do you need from us?” according to a government blog post at the time.
Beijing began giving independently owned refiners more freedom to refine petroleum sourced from abroad in 2015 to enhance competition, according to analysts. Many moved into buying Iranian oil after President Trump started tightening sanctions in 2018.
Ship-tracking data suggest the shadow-fleet tanker Seeker 8 dropped cargo at Hengli’s refinery in January. The vessel approached Hengli’s port on Changxing Island on the morning of Jan. 27, then stopped transmitting its location from just before 7:30 a.m. that morning to about 1:45 p.m. on Jan. 30, according to data from Starboard Maritime Intelligence examined by The Wall Street Journal. Within minutes of its location data resuming, the vessel reported a change in draft of nearly 30 feet — consistent with a heavily laden tanker having unloaded its cargo, said Starboard analyst Mark Douglas and Jason Wang, chief operating officer of ingeniSPACE. Earlier that month, Seeker 8 had received two million barrels of Iranian crude from another vessel that had picked up its cargo at Iran’s Kharg Island in December, according to Kpler.
In April, Seeker 8 was one of 19 vessels sanctioned by Washington for transporting Iranian oil and petroleum products. This summer it began broadcasting the name Ruby, assuming the identity of a vessel scrapped in 2018 in an apparent effort to keep operating under the radar, Douglas said. The Treasury and industry brokers said Hengli has received Iranian oil cargoes from a host of shadow-fleet vessels, including three ships sanctioned by the U.S. that alone have delivered over five million barrels of Iranian crude since at least 2023.
The practice is widely discussed in the shipping industry. A March report in the state-owned newspaper National Business Daily described how teapot refineries sourced cheap barrels from “special channels” and transported them to China via so-called “shadow fleet” boats, which U.S. officials and industry analysts say use deceptive practices to hide their movements. Such transfers have given independent refiners “a significant procurement cost advantage, which has also been a core means of survival for the industry for many years,” the article said.
Even as its refining arm came under sanction, Hengli’s shipbuilding business — which is not sanctioned — closed over $2 billion in deals to build oil tankers and vessels for clients in Europe just weeks after the April action. Its order book is filled through 2030, with contracts surpassing $25 billion. The company bought the assets of a Dalian shipyard, once owned by a South Korean shipbuilding giant, in 2022 for around $300 million at current exchange rates, and has since built it into China’s second-largest shipyard, according to Clarksons Research.
The oil Hengli buys is a small share of China’s imports, which have topped 4 billion barrels annually in recent years. But the purchases illustrate a wider pattern: China’s more than 100 teapot refiners have minimal need for dollars and therefore less to lose if they get sanctioned, unlike the country’s state-owned firms, which generally steer clear of sanctioned oil to maintain access to the U.S.-led global financial system. Iran’s oil exports have been greatly reduced after the U.S. imposed naval blockades of Iranian ports, though it is unclear how long that will remain the case.