Max Pressure: U.S. Prepares For Extended Hormuz Blockade As Treasury Warns Sanction Risks Linked To China's "Teapot" Refineries

The U.S. is intensifying pressure on Iran and China across two fronts.

First, on the military side, The Wall Street Journal reported that President Trump told top aides to prepare for an extended U.S. naval blockade of the Strait of Hormuz, a move that would strangle Tehran's oil revenue.

Second, on the economic side, the Treasury Department's Office of Foreign Assets Control is warning financial institutions about sanctions exposure related to Chinese independent "teapot" refineries, particularly in Shandong Province, due to their continued purchases and refining of Iranian crude.

Taken together, the message from President Trump to Secretary of the Treasury Scott Bessent is very clear: Washington is squeezing Iran's oil revenue at both ends of the supply chain, through a continued blockade of the Hormuz chokepoint that enables exports and the Chinese refining network.

"China purchases approximately 90 percent of Iran's oil exports, with teapot refineries accounting for the majority of these imports. This revenue ultimately benefits the Iranian regime, its weapons programs, and its military," Treasury explained in a press release, adding, "Some Chinese teapot refineries have used the U.S. financial system to conduct dollar-denominated transactions and procure U.S. goods."

What OFAC is doing is urging banks to tighten controls, conduct enhanced due diligence on transactions involving China-based refineries, and communicate sanctions expectations to correspondent banks.

Treasury also imposed sanctions on 35 entities and individuals for their roles in Iran's shadow banking sector.

The reason the Treasury singled out Shandong Province is that the area in China is a core hub for China's independent refineries.

Efforts to end the US-Iran war, now entering the third month, have morphed from an air campaign against Tehran to an economic war with hopes that the Trump administration can economically squeeze Tehran into a favorable peace deal that includes winding down its nuclear program.

"Iran's shadow banking system serves as a critical financial lifeline for its armed forces, enabling activities that disrupt global trade and fuel violence across the Middle East," Bessent said in a statement, quoted by Reuters.

"Illicit funds funneled through this network support the regime's ongoing terrorist operations, posing a direct threat to U.S. personnel, regional allies, and the global economy," Bessent said, adding any institution that facilitated or engaged with these networks was at risk of "severe consequences."

OFAC has already imposed about 1,000 sanctions on Iran-related individuals, ships, and aircraft as part of a campaign to exert maximum economic pressure on Iran's shadow banking.

Brett Erickson, managing principal at Obsidian Risk Advisors, told Reuters that the Trump administration should go after Chinese banks that have supported Tehran.

"Washington keeps talking about waging a maximum pressure campaign, but it is still avoiding the one move that would actually matter," Erickson said. "If you are not willing to target the Chinese banks propping up the regime in Tehran, you are not going for the jugular, you are running a charade."

The U.S. economic pressure campaign on Tehran, as well as China, comes as Trump travels to Beijing next month to meet with his Chinese counterpart, Xi Jinping.