China has formally invoked its 2021 Blocking Statute for the first time. It is aimed at recent US sanctions on five Chinese refineries linked to Iranian oil transactions.
The move bars parties in China from complying with these US measures. It creates a direct conflict between US sanctions demands and Chinese legal requirements.
Blocking Statute First Use
Third parties that comply with the US sanctions may now face legal risk under Chinese rules. This is intended to change how US secondary sanctions affect market participants.
The statute is designed to deter compliance with what China deems unjustified extra-territorial sanctions. It signals that following US restrictions may not be the lowest-risk option in all cases.
The development comes ahead of a planned summit between President Xi and Donald Trump. The article notes the potential for further Chinese measures if similar disputes continue.
China is now formally using its Blocking Statute to counter US sanctions, creating a direct legal conflict for companies doing business in both jurisdictions. We should prepare for significant volatility, particularly in currency markets. Implied volatility on USD/CNH options for the next three months has already spiked to levels not seen since the trade war escalations back in 2025.
Market Volatility Watch
This move directly impacts crude oil, as it involves refineries processing Iranian supply that the US has tried to keep off the market. While this could mean more supply theoretically pressuring prices, the heightened geopolitical risk ahead of the planned Xi-Trump summit is creating a floor. We’ve seen a 15% jump in trading volume on the Shanghai INE’s Yuan-denominated oil futures in the last month, a clear signal of this shift.
We need to watch for the ripple effects on third parties like international banks and shipping companies caught in the middle. Their legal risks have just multiplied, making it much harder to assess counterparty risk. This uncertainty is visible in the broader market, with the VIX jumping over 10% last week after a period of relative calm.
The bigger picture here is the acceleration of de-dollarization, which we’ve been tracking since the sanctions on Russia back in 2022. China is demonstrating an ability to create a non-dollar ecosystem for key commodities. For our derivatives strategies, this suggests considering long-term positions that could benefit from a weaker dollar against a basket of Asian currencies.
