China's blocking rules, EU's 21st Russia sanctions package, Strait of Hormuz transit risks, and Sweden's shadow fleet crackdown.
On 2nd May 2026, China’s Ministry of Commerce issued for the first time a prohibition order under its Rules on Counteracting Unjustified Extraterritorial Application of Foreign Legislation and Other Measures in response to the U.S. designation of five Chinese refineries. The order provides that the relevant U.S. sanctions on five designated Chinese refineries shall not be complied with.
The Rules are part of several Chinese legal instruments whose purpose is to prevent companies subject to Chinese jurisdiction from complying with e.g. EU and US sanctions, notably China’s Anti Foreign Sanctions Law which China’s Supreme Court on 24 June 2026 held is mandatorily applicable. Failure to respect these blocking rules (i.e. compliance with the western sanctions concerned) may have numerous consequences, including:
Without a doubt, China’s blocking rules place western companies between a rock and a hard place. Companies are recommended to review contacts and ensure that they provide as good protection as possible. In particular, contracts should cater for great flexibility and include concrete mechanisms that help the parties to navigate through a situation where sanctions regimes clash.
On 23rd July 2026, the EU Council agreed on imposing further sanctions on Russia and Belarus which may be summarised as follows:
Companies are recommended to review their due diligence procedures to ensure they are not unknowingly involved in indirect trade with Russia, Belarus, or with sanctioned entities. Notably, the Swedish paper Dagens Industri recently reported that the amount of advanced (and sanctioned) Swedish technology ending up in Russia has increased drastically and also noted that India is a major re-routing hub for this purpose.
The risk for sanctions circumvention stretches beyond transactions with (the increasing) number of companies in third countries that formally have been subject to tighter export restrictions. The risk is present in all transactions, even domestic ones. As previously reported Sanctions update 1/2026 Russia’s procurement networks start in Sweden.
On 23 April 2026, the Chinese semiconductor manufacturer Yangzhou Yangjie Electronic Technology Co., Ltd. was sanctioned by the EU. The reason for the sanctioning is that the company has been deemed contributing to Russia’s war against Ukraine in providing a significant number of components to Russia’s drones and ammunition. However, the designation caused great turmoil amongst EU companies doing business with the company. As a result, on 15th June 2026 the EU introduced the possibility to apply for a license to continue transactions, for a limited period of time, which are strictly necessary to terminate ongoing contracts or otherwise to enable a transition towards other suppliers.
Under the various EU sanctions regimes, circumvention of sanctions is illegal and doing so constitutes a separate sanctions breach (see e.g. Article 12 of Council Regulation 833/2014). In addition, facilitation of infringements of the prohibition against circumvention of EU sanctions is in itself a ground for being sanctioned (see for example Article 3(1)(h) of Council Regulation 269/2014). The EU Court of Justice recently had reason to revisit the expression “facilitate” when issuing a judgement in Case T-492/24, which was an appeal by Dimitry Beloglazov of his designation.
The reason for the designation was that Mr Beloglazov had been engaged in a scheme in Russia to buy Oleg Deripaska’s shareholding in a company which held 28.5 million frozen shares in another company and thereby remove Mr Deripaska from the ownership in order to make it easier to sell the shares and circumvent the EU asset freeze.
The Court held that “facilitate” must be understood as the act of making easier the carrying out of an operation intended to, or resulting in, the circumvention of restrictive measures, by assisting or aiding in the carrying out of that operation. The Court also stressed the broad meaning of “circumvention”, holding that the mere existence of an activity, in respect of which there are objective factors allowing it to be regarded as aimed at thwarting of the sanctions concerned, is sufficient for it to be regarded as circumvention. The appeal was dismissed.
The notion of “control” is crucial across EU sanctions regimes, as it delineates the boundary for which assets of a listed entity are to be frozen. In two parallel preliminary rulings upon requests from the administrative court in Rome (Case C-483/23, Joined Cases C-428/24 and C-476/24), the EU Court of Justice was asked to clarify whether assets placed in offshore irrevocable trusts frozen by the Italian Ministry of Finance could be considered “controlled” by a listed person or entity. The Court held that also assets in irrevocable trusts must be frozen when a listed ultimate beneficiary of the assets – regardless of whether they are trust functionaries or not – can use or influence the trust’s assets or influence the trustee. When the listed person or entity can recall the trust, replace functionaries, or give binding instructions to the trustee, the trust’s assets are normally “controlled”. The Court deferred to the Italian court to rule on the merits, but noted several circumstances of the two cases that could indicate control.
Vessels transiting the strait of Hormuz not only runs a significant risk of being physically attacked, the transit also involves a sanctions risk. On 27th May 2026, the US designated the Persian Gulf Strait Authority (PGSA) which is the entity involved in collecting toll for transiting the strait. As a result, any vessel paying toll for transiting the strait will breach US sanctions.
Although the EU has not designated the PGSA, the Islamic Revolutionary Guard Corps Navy (IRGCN), which reportedly is controlling PGSA, is designated. In addition, the Hormozgan Provincial Command of the EU listed Islamic Revolutionary Guard Corps Navy, which screens vessels and determines which ones are allowed to transit, was designated by the EU on 8th June. Hence, paying toll entails also a risk under EU sanctions.
In addition, on 24th July 2026, Lloyds Market Association (LMA) published a new model insurance clause stating, inter alia, that the vessel’s insurer is discharged from all obligations in respect of the vessel if a toll payment for passing through the territorial waters of Iran, or otherwise to transit the Strait of Hormuz, is made. The main reason for the clause is reportedly to close a gap under the UK Insurance Act. However, it also serves a purpose in a wider context to put down a marker that marine insurers steadfastly oppose regimes which threaten safe passage of vessels. As the explanatory notes to the clause make clear, payments for transiting an international waterway are illegal under UNCLOS.
On 6th August, a quite remarkable legal saga came to an end when the Swedish Supreme Court did not grant leave for appeal regarding the seizure of the vessel CAFFA. The vessel was seized on 6th March 2026 by the Swedish Coast Guard within Swedish territorial waters on the basis of suspected unseaworthiness. The vessel’s flag did not meet legal requirements and as a result the vessel was deemed stateless and could not benefit from the right of innocent passage provided for under public international law.
The seizure has been maintained by the Swedish authorities with reference to a criminal investigation to the theft of grain from non-controlled territories of Ukraine. It is suggested that the theft constitutes a war crime. The vessel’s owners have been contesting the seizure throughout. As per the judgement of the first instance which was confirmed by the appellate court, the vessel is now expected to be handed over to the Ukrainian authorities for further investigations.
In total, during 2026 the Swedish Coast Guard has boarded five suspected shadow fleet vessels, invoking grounds such as unseaworthiness, statelessness, falsified documentation and environmental violations.
Shadow fleet vessels are generally defined as substandard vessels used to circumvent sanctions. For more information about the shadow fleet see our Sanctions Update 1/2026 and 3/2024.
