Sanctions Update: May 18, 2026

The Sanctions Update, compiled by attorneys from Steptoe’s award-winning International Regulatory Compliance team and the Stepwise: Risk Outlook editorial team, publishes every Monday. Guided by the knowledge of Steptoe’s industry-leading International Trade and Regulatory Compliance team, the Sanctions Update compiles and contextualizes weekly developments in international regulatory enforcement and compliance, as well as offers insights on geopolitical context, business impacts, and forthcoming risks.

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The Lede

Reach of US Sanctions in the Spotlight as US Imposes New Sanctions on the Eve of the US-China Summit

On May 11, the US government announced new sanctions against entities in Hong Kong, the United Arab Emirates (UAE), and Oman, targeting entities allegedly supporting the Iranian Islamic Revolutionary Guard Corps (IRGC) to sell and ship oil to China. The sanctions were instituted pursuant to Executive Order (E.O.) 13224, a counterterrorism authority designed to disrupt terrorist financial support networks. The sanctions are part of Washington’s “maximum pressure” strategy against Iran and its newest iteration, Economic Fury, the Treasury Department’s effort to further restrict Iran’s ability to profit from oil sales amid the conflict in the Middle East.

The newly announced sanctions are the latest step in an escalating tit-for-tat between Beijing and Washington over the extraterritorial reach of American sanctions harming Chinese trading relationships. In late April, the US imposed sanctions on a Chinese “teapot” refinery that Washington claims is one of Iran’s largest customers for crude oil and petroleum products. The designation marked the fifth major Chinese independent refinery sanctioned by the US since Washington renewed its maximum pressure campaign on Iran’s energy sector. Shortly afterward, OFAC issued an alert, warning financial institutions about the risks of dealing with Chinese teapot refineries involved in importing and refining Iranian crude oil, naming the five sanctioned refineries. In response, China’s Ministry of Commerce on May 2 issued a formal blocking order prohibiting any entity or individual in China from recognizing, enforcing, or complying with US sanctions on the five refineries. The move marked the first formal invocation of China’s “Blocking Measures” rule, introduced in 2021. At the same time, however, China’s National Financial Regulatory Administration reportedly advised Chinese banks to temporarily refrain from issuing new loans to the sanctioned refineries, likely to limit further escalation and shield its banks from financial blows. Beyond Iran's oil-related sanctions, the US imposed sanctions on entities and individuals accused of supporting Iran’s military procurement and operational networks, including several based in China and Hong Kong, on May 8. US Secretary of State Marco Rubio also warned during a press conference on May 5 that “any foreign financial institution or commercial actor” enabling Iran would face secondary sanctions.

The back and forth over sanctions comes at a sensitive moment for the US-China relationship. US President Donald Trump traveled to Beijing last week to meet with Chinese Premier Xi Jinping, his first visit to China in his second term. The US has repeatedly accused China-based entities of supporting Iran’s military efforts in multiple ways, including buying oil, providing technological components for weapons, and even providing Iran with satellite imagery for its military operations. However, the US has also shown interest in pressing China, the largest buyer of Iranian oil, to use its leverage to facilitate an end to the conflict. The American readout of Trump and Xi’s conversation emphasized points of agreement between Washington and Beijing: Iran cannot be allowed to control the Strait of Hormuz, and Iran cannot have nuclear weapons.

The summit and the sanctions dispute demonstrate that the balance of power in the US-China relationship is in flux. The administration’s interest in cooperating with China shows the extent to which the war in Iran has boosted Beijing’s geopolitical leverage and reinforced its position as a key global actor. Another aspect of Trump’s summit agenda beyond the Iran war was the effort to preserve the US-China tariff truce, but reporting thus far indicates the talks yielded little progress. While both sides signaled support for stability, there were no confirmed concrete steps toward extending the agreement.

China has also developed a diverse toolkit of counter-sanctions measures to block what Beijing views as unlawful extraterritorial actions against China. These measures include a “Malicious Entity List” identifying entities that help implement a “foreign state’s unlawful extraterritorial jurisdiction measures,” as well as regulations against foreign attempts to harm Chinese supply chains. Beijing’s instructions to Chinese entities and individuals not to comply with US sanctions also represented a significant escalation in China’s readiness to directly confront and oppose American extraterritorial sanctions.

The evolving implications of Washington’s sanctions, amid Beijing’s increased signaling that it will no longer adhere to them, touch on just how far American economic power extends. Washington has employed sanctions as a tool of economic statecraft for decades, often through the use of secondary sanctions to discourage or prevent third countries from cooperating with the targeted country. Beijing’s institutionalization of countersanction measures, its willingness to reject American secondary sanctions, and its own use of tools like export controls challenge the role of sanctions in Washington’s foreign policy toolkit.

US Developments

OFAC Continues to Issue New Designations under “Economic Fury”

On May 11, 2026, OFAC designated 12 individuals and entities for their alleged roles in enabling the Islamic Revolutionary Guard Corps’ sale and shipment of Iranian oil to China. OFAC’s designations included multiple entities based in the United Arab Emirates (UAE) and Hong Kong.

These sanctions were the latest in OFAC’s “Economic Fury” campaign against Iran, which the Trump administration has claimed will be the “financial equivalent” of a bombing campaign to increase pressure on Tehran unless and until a framework to end the war is agreed upon. Specifically, the May 11, 2026, sanctions follow eight similarly targeted actions taken by OFAC over the last 30 days, including designations on April 15, April 17, April 21, April 24, April 28, May 1, May 7, and May 8, 2026.

UK Developments

UK Targets Hostile Russian Activity in New Russia-linked Designations

The UK Government has made 85 new designations under the UK’s Russia sanctions regime. According to a UK Government press release, these designations target networks involved in the forced deportation, indoctrination, and militarisation of Ukrainian children, as well as those driving Russia’s information warfare campaigns.

The designations focus on three two areas (i) persons involved in the policy of Russification of Ukrainian children such as the Centre for Military Sports Training and Patriotic Education of Youth (i.e., the ‘Warrior Centre’ where Ukrainian children are subjected to military training and pro‑Kremlin ideology) and the Minister for Youth Policy in the so‑called ‘Luhansk People’s Republic’ and (ii) individuals working for the Social Design Agency, including writers, translators and video makers responsible for deceptive Kremlin propaganda. These new designations will now be subject to an asset freeze, and, in the case of individuals, a UK travel ban.

UK Targets Organisations and Individuals Enabling Hostile Iranian Activity in New Iran-linked Designations

The UK Government has made 12 new designations under the UK’s Iran sanctions regime. According to a UK Government press release, these designations target organisations and individuals who threaten international and UK security in response to Iranian action against global security and its use of criminal gangs to carry out threats overseas. In particular, the measures target illicit finance flows that enable the Iranian regime to pursue destabilizing action across the Middle East, including the blockade of the Strait of Hormuz and military strikes against the UK’s regional and Gulf allies. They also focus on criminal proxies who act on behalf of the Iranian state to threaten the US and Europe by preventing criminal gangs from travelling to the UK or accessing assets that finance their illegal activity. These new designations will now be subject to an asset freeze, and, in the case of individuals, a UK travel ban.

King’s Speech Announces the Introduction of State Threats Legislation

The King’s Speech announced the introduction by the UK Government of the State Threats Bill during the new parliamentary session. The legislation, if passed, will grant powers for the UK Government to designate organizations that are engaged in threatening activity linked to a foreign power. Specifically, the legislation would enable the specification of state entities and their proxies that engage in activity to threaten the UK’s national security, including espionage, sabotage, and interference (akin to existing UK proscription powers under the Terrorism Act 2000).

EU Developments

EU Council Adopts Sanctions Against Individuals and Entities Responsible for the Unlawful Deportation of Ukrainian Children

The EU Council designated an additional 16 individuals and seven entities under the EU sanctions framework in response to actions undermining or threatening the territorial integrity, sovereignty, and independence of Ukraine. The new listings target those responsible for the systematic, unlawful deportation, forced transfer, and forced assimilation of Ukrainian children to the Russian Federation and within the temporarily occupied territories of Ukraine.

Among the individuals sanctioned are members of occupation administrations in Crimea, Kherson, and Zaporizhzhia, as well as Russian officials and camp directors responsible for programs aimed at the ideological re‑education, pro-Russian patriotic indoctrination, and militarized training of Ukrainian children. The entities designated include federal state institutions linked to the Russian Ministry of Education, along with organizations operating under occupation authorities in the temporarily occupied territories of Ukraine, including children’s centers and military‑patriotic training facilities. The listed individuals and entities are now subject to asset freezes and a prohibition on the provision of funds or economic resources.

EU Council Renews Cyber-Attacks Sanctions Regime

The EU Council has renewed the restrictive measures against cyber-attacks threatening the EU and its Member States for another year, until May 18, 2027. The sanctions regime provides for the freezing of funds and economic resources of individuals and entities responsible for, or involved in, cyber-attacks or attempted cyber-attacks with a significant effect that constitute an external threat to the EU or its Member States. It also targets those providing financial, technical, or material support for cyber-attacks, as well as those who assist, encourage, facilitate, or are otherwise associated with them. In addition, listed individuals are subject to travel restrictions.

Following a review of the sanctions listings, the EU Council updated the statements of reasons for the listing of four individuals and one entity. The cyber-attacks sanctions regime currently applies to a total of 19 individuals and seven entities.

EU Foreign Ministers Reach Political Agreement to Sanction Israeli Extremist Settlers and Entities

Following the Foreign Affairs Council meeting of May 11, High Representative of the EU Kaja Kallas announced that EU foreign ministers had reached a political agreement to move forward with sanctions targeting Israeli extremist settlers and entities supporting settlement activities in the West Bank. At the same time, EU ministers agreed to adopt further restrictive measures against leading Hamas figures.

The agreement comes after months of deadlock within the EU Council, primarily due to opposition from former Hungarian Prime Minister Viktor Orbán. Péter Magyar, who was sworn in as Hungary’s Prime Minister on May 9, reportedly confirmed that Hungary would not block broadly supported sanctions, enabling the Council to reach a political agreement on restrictive measures addressing serious human rights concerns in Gaza and the West Bank for the first time.

EU to Prepare 21st Sanctions Package Against Russia

In a press conference held after the Foreign Affairs Council of May 11, High Representative of the EU Kaja Kallas confirmed that the EU will begin preparing its 21st sanctions package against Russia. According to reports, the package is expected to be unveiled in late June or early July, subject to discussions among Member States.

In the reported statement, Kallas indicated that the upcoming package will target Russia’s military-industrial complex, with Member States also invited to propose additional measures, including against the shadow fleet used to circumvent sanctions. Kallas further noted that EU foreign ministers have agreed to adopt measures on a “rolling” basis, allowing new listings and restrictive measures to be introduced continuously rather than as part of a single comprehensive package. Kallas reiterated that the overarching objective remains to deprive Russia of the financial resources necessary to sustain its war in Ukraine.”

Asia-Pacific Developments

China Invokes Blocking Rule for First Time, Signaling Shift to Formal Sanctions Regime

On May 13, 2026, China reportedly invoked its 2021 Blocking Rule for the first time, ordering domestic firms to disregard US sanctions targeting a Chinese oil refinery and dozens of ships accused of purchasing Iranian crude. The move showcased Beijing’s expanding legal arsenal—eight major regulations introduced since 2020—to counter foreign restrictions and formalize its capacity to impose sanctions. These include the Unreliable Entity List, the Export Control Law, and the Anti‑Foreign Sanctions Law, which collectively strengthen China’s ability to investigate, penalize, and protect entities caught in geopolitical disputes. Analysts say the development marks a transition from China’s past reliance on informal pressure, such as boycotts of South Korean goods after the THAAD missile deployment, to a structured sanctions regime.

India Declines Sanctioned Russian LNG Cargo Amid Compliance Concerns

On May 11, 2026, India reportedly declined an offer from Russia to purchase liquefied natural gas (LNG) subject to US sanctions, leaving a tanker from Russia’s Portovaya plant stranded. The media reported that the decision reflects India’s attempt to balance energy security with compliance risks tied to US restrictions. The 138,200‑cubic‑metre vessel Kunpeng, initially bound for India’s Dahej LNG terminal, is now idling near Singapore after being denied discharge clearance. Indian officials informed Russia’s Deputy Energy Minister Pavel Sorokin of the decision “not to buy LNG that was under sanctions” during his April 30 visit, when he met Petroleum Minister Hardeep Singh Puri. Despite its refusal to accept sanctioned LNG, India continues to import Russian crude under a temporary waiver introduced after the US–Israeli conflict with Iran disrupted Middle East energy flows. Analysts note that LNG cargoes are harder to disguise than crude, making them riskier for buyers under secondary sanctions. India remains open to purchasing authorized Russian LNG, though most volumes are already committed to Europe, while China continues to buy both sanctioned and unsanctioned cargoes.

Australia Imposes Sanctions on Iran Over Repression and Military Funding

On May 12, 2026, Australia announced a new round of financial sanctions and travel bans, coordinated with the United Kingdom. The measures target seven Iranian officials and four organizations accused of human rights abuses and supporting military activities.

Foreign Minister Penny Wong said the sanctions were in response to “the regime’s ongoing brutal oppression of its people and destabilisation of the region.” She added that they also target Iran’s “shadow banking system,” which is used to fund groups such as Hamas, support its ballistic missile program, and carry out other destabilizing actions. Wong noted that Iran’s leadership has restricted internet access to hide these abuses from the world. The Albanese government has now imposed sanctions on more than 230 Iran-linked individuals and entities, including over 100 connected to the IRGC.

Linguistic Loophole Lets Sanctioned US Secretary of State Rubio Visit China

On May 13, 2026, China permitted US Secretary of State Marco Rubio to enter the country for the Trump‑Xi summit, despite his being under Chinese sanctions. To enable the visit, China reportedly adopted a “linguistic workaround,” altering the Chinese character used to transliterate “Rubio” and thereby distinguishing the diplomat’s name from the version linked to the sanctions list. According to two Chinese diplomats cited by Agence France‑Presse (AFP), the subtle change allowed authorities to bypass restrictions imposed when Rubio, as a senator, led efforts to sanction China over alleged human rights abuses in Xinjiang and Hong Kong. A spokesperson for the Chinese embassy confirmed that the sanctions targeted Rubio’s past actions, not his current post as Secretary of State. The workaround comes as China hosts Donald Trump for talks on trade, Taiwan, and artificial intelligence, underscoring Beijing’s willingness to adapt even its language tools to manage high‑stakes diplomacy.

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