As featured in Trade Treasury Payments
The designation of Chinese terminal operators by the U.S. Treasury’s OFAC has created a commercial conundrum for traders storing compliant cargo at these facilities. Once a terminal becomes a Specially Designated National (SDN), the commercial ecosystem freezes — banks refuse payments, vessels decline to call, and perfectly lawful oil becomes effectively trapped inside blocked infrastructure. For many traders, the reality is that your oil is not sanctioned but is held hostage by the trading ecosystem. This briefing examines the legal frameworks, practical obstacles, and strategic responses for traders navigating this crisis, highlighting the need for protections in the oil storage agreements between terminal and trader, to prevent future exposure.
The Situation Report
• Sanctioned terminals become “blocked persons”, freezing all commercial relationships
• S. traders face absolute prohibition; non-U.S. traders face severe practical barriers including how to pay terminals who might invariably have a lien over the cargo.
• Cargo stored at sanctioned facilities faces documentary contamination and marketability issues.
• Non-performance and termination of storage arrangements need to be carefully analysed including the application of possible PRC anti-sanctions law.
• Future storage arrangements require comprehensive sanctions protection clauses.
The Sanctions Minefield
In October 2025, OFAC designated various Chinese companies including a terminal and refinery as sanctioned entities for handling Iranian oil. This builds on the sanctions rolled out in May 2025, where the US for the first time targeted terminal operators in China. For U.S. Persons, the consequences are severe – all dealings are prohibited. This means no payments, no instructions, no correspondence relating to cargo. Even attempting to retrieve compliant cargo violates sanctions unless specifically licensed by OFAC.
For non-U.S. Persons, while primary sanctions might not apply, the practical barriers to retrieving and monetizing perfectly legitimate cargo at these trminals can also be challenging. Banks would generally avoid transactions involving a SDN, vessels will be reluctant to call at sanctioned terminals and innocent traders will be faced with the conundrum of how to pay a terminal listed as an SDN to retrieve their cargo, and whether that would be regarded as “material support” triggering secondary sanctions.
Sanctions have a cascading effect on key aspects of lifting cargo from storage terminals, including on the following fronts: (i) rental payments, (ii) banking, (iii) shipping and (iv) perceived contamination.
Payment Stand-Off: Terminals are likely to have a possessory lien over the cargo until payments for tank rental are made, but the ability to make any payment to a sanctioned terminal is fraught with difficulty, even for non-U.S. Persons.
Banking Shutdown: The terminal tank receipt, a document indicating the lifting of the cargo from the terminal, will invariably result in financial institutions flagging any transaction mentioning SDN names, even if alternative currencies are used.
Operational Lockdown: Vessel operators will be wary of sanctioned terminals and indeed whether they are carrying sanctioned cargo.
Contamination risks: Traded oil is only as good as its documents; and tank certificates linked to a sanctioned terminal will invariably raise concerns over the proprietary of the transactions. Commingling of Iranian oil will be at the top of mind for anyone asked to deal with cargo stored at a sanctioned terminal. Even if your specific molecules never mixed with sanctioned product, proving this to downstream buyers is not straightforward, particularly since terminal records might be deemed unreliable. The association of cargo with the terminal unfortunately means that traders are faced with a marketability crisis even if they can logistically retrieve the cargo.
Getting out of the Storage Agreement
Most storage agreements do not contemplate the terminal being sanctioned. This is now a critical area because traders might instinctively seek to terminate their agreement on account of sanctions but may find that the wording of their agreements does not immediately facilitate a clean break. Force majeure clauses might be considered but the controversy will revolve around whether performance (i.e., payment), has indeed been prevented, which in turn will also raise the analysis of whether the trader is bound by U.S. sanctions. In any event, force majeure is unlikely to provide an immediate exit, often requiring a suspension of obligations for a fixed period before parties can terminate. The terminal might deny the application of force majeure, and in the case of PRC law governed agreements, might rely on Anti-Foreign Sanctions Law and similar statutes create conflicting rights and obligations.
Frustration, a common law right that does not need to be expressly included in the contract is also likely to be controversial given possible challenges to whether performance has truly been made impossible or just more difficult. The terminal’s bottom line in such situations might be to assert a possessory lien over the cargo until it is paid all overdue sums. Therefore, bespoke sanctions clauses need to be considered in future storage arrangements to not just terminate the agreement in the event of sanctions, but also to facilitate re-delivery of the cargo without further payments to the terminal if necessary.
Getting the Cargo out
For U.S. Persons, the realistic options are between abandoning the cargo or applying for an OFAC license. The license route requires submitting detailed documentation proving cargo is compliant and unrelated to sanctioned activities. This will invariably take time to review while storage fees continue to accrue. While Non U.S. Persons might take the view that primary sanctions do not apply to them, there is still a risk of the spectre of secondary sanctions if, for instance, it is deemed that payments under the storage agreements constitute material assistance. Ultimately, getting an OFAC license to remove their cargo from a sanctioned terminal might be the safest course for traders.
Assuming logistical and banking hurdles can be overcome, establishing a documentary trail of the cargo that is free of Iranian contamination, including certificates from reputable surveyors, and a detailed evidence of storage dates, segregation measures and cargo compliance, will be vital.
Read the full article on Trade Treasury Payments https://tradetreasurypayments.com/articles/sanctioned-terminals-and-trapped-oil