Summary: China’s recent invocation of its Blocking Rules against U.S. sanctions marks a significant moment in the evolving landscape of global sanctions law. As nations increasingly push back against the extraterritorial reach of unilateral sanctions, the question arises: What does this mean for India? This article examines China’s move, its implications for the global sanctions regime, and what a potential Indian blocking statute could look like in practice.
Introduction
On May 2, 2026, China’s Ministry of Commerce (“MOFCOM”) issued a prohibition order (“Prohibition Order”) under its Rules on Counteracting Unjustified Extraterritorial Application of Foreign Legislation and Other Measures (“Blocking Rules”),[1] marking the first operational deployment of this mechanism since it came into force in 2021. The Prohibition Order declares that the sanctions imposed by the United States of America (“U.S.”) against five Chinese oil refineries, including Hengli Petrochemical (Dalian) Refining Co., shall not be recognised, enforced, or observed within the Chinese jurisdiction. More than merely sending a diplomatic signal, this marks one of the most significant instances of a major economy, after the European Union (“E.U.”), converting a counter-sanctions legislative framework into an enforceable legal instrument.
China’s Prohibition Order – Key Takeaways
The novelty of MOFCOM’s prohibition order lies in its direct engagement with the domestic law dimension of international sanctions enforcement. A third party, whether a financial institution, technology provider, or logistics operator, withdrawing services from a sanctioned Chinese entity covered under a prohibition order is no longer simply exercising contractual discretion. Within the Chinese jurisdiction, such conduct can now be characterised as non-compliance with a domestic prohibition order.
Notably, Article 9 of the Blocking Rules further confers on affected Chinese persons a right to seek compensation from parties causing loss to them by prioritising foreign sanctions compliance over contractual performance.[2] This is the Chinese mechanism’s most practically significant feature insofar as it does not merely prohibit recognition of foreign sanctions in the abstract; instead, it shifts focus to the contractual pathways through which extraterritorial sanctions are privately enforced. Accordingly, a sanctions-triggered termination clause may, in certain circumstances, expose the invoking party to liability under Chinese law insofar as the Prohibition Order provides that the U.S. sanctions, asset freezes, and transaction prohibitions shall not be recognised, enforced, or observed.
Indian Government’s Stance and Lessons from the Nayara Episode
Like China, India’s stance on unilateral sanctions is publicly established. The Ministry of External Affairs, Government of India, has stated that India does not subscribe to unilateral sanctions regimes and recognises only those measures authorised by the United Nations Security Council.[3] This reflects India’s broader doctrine of strategic autonomy, particularly in the context of its trade relationships with countries subject to U.S. and E.U. designations.
However, India’s policy position has not yet been translated into domestic legislation. In the absence of a formal blocking or counter-sanctions statute as seen in China and the E.U., Indian companies have limited legal recourse when counterparties invoke third-country sanctions as grounds for suspending or terminating contractual obligations. The gap between India’s stated inter-governmental position and the legal remedies available to Indian entities at the commercial level remains significant and commercially consequential.
The practical dimensions of this gap are illustrated by the experience of Nayara Energy Limited (“Nayara”), India’s second-largest private refiner, in which Rosneft holds approximately 49 per cent ownership stake. Following Russia’s invasion of Ukraine, Nayara was designated under the E.U. sanctions regime. Consequently, technology service providers, including SAP India Pvt. Ltd. (“SAP”), curtailed services to Nayara by invoking their contractual clause that limited SAP’s liability for suspension/termination due to applicable export control laws.
This illustrates a structural vulnerability for Indian companies. Sanctions-related termination clauses permit counterparties to exit contractual relationships when a foreign government designates sanctions, often leaving the sanctioned Indian party without a corresponding remedy. Consequently, the Indian entity bears the commercial loss, with no domestic legal framework to fall back on.
The Road Ahead – Designing India’s Counter-Sanctions Architecture
Drawing on the Chinese and E.U. frameworks as reference points, the Government of India is understood to be actively considering a domestic blocking or counter-sanctions statute, with the Ministries of External Affairs and Commerce engaged in inter-ministerial deliberations.[4] If well designed, such legislation would materially alter the commercial landscape for Indian entities exposed to third-country sanctions.
A domestic blocking statute would operate at two levels. At the regulatory level, it would render foreign sanctions measures inapplicable within Indian jurisdiction, preventing their domestic recognition or enforcement. At the commercial level, it would provide Indian entities with enforceable legal remedies against counterparties that unilaterally suspend or terminate contractual obligations on the basis of third-country designations. Coupled with a potential civil compensation right for affected Indian entities, it would impose genuine legal risk on counterparties seeking to exit contracts governed by or performed within India.
Additionally, the adoption of such a domestic blocking statute would also place India on a comparable footing with other major economies, including China and the E.U., that have already operationalised such frameworks. This would reduce the asymmetry in bargaining power that Indian entities currently endure in cross-border commercial relationships.
Weighing the Implications – Evaluating the Cons of a Domestic Blocking Statute
However, a blocking statute is not without risks, as Indian companies heavily reliant on the U.S. financial system or conducting transactions in U.S. dollars may face a compliance bind, with the real risk of being cut off from international correspondent banking networks. Such a blocking statute could also invite retaliatory measures or heightened scrutiny from sanctioning jurisdictions, particularly the U.S., potentially adversely affecting bilateral trade and investment flows.
Two further structural gaps compound the problem. First, international marine and trade insurance is overwhelmingly controlled by European and American insurers who will refuse to cover Office of Foreign Assets Control (“OFAC”)-sanctioned transactions. Without coverage, no transaction can proceed, regardless of what a domestic law mandates, and India’s reinsurance market lacks the scale to substitute. Second, any diplomatic cushion India enjoys through the Quad and Indo-Pacific architecture operates solely at the government-to-government level and affords no legal protection to Indian companies facing active OFAC enforcement.
Separately, enforcement of a blocking statute requires robust institutional capacity, including a designated authority empowered to assess, on a case-by-case basis, which foreign measures warrant prohibition orders. Without such calibration, the framework risks being either over-inclusive or under-utilised. Any legislative design must, therefore, carefully calibrate the scope of the blocking mechanism to mitigate these risks while preserving its core protective function.
Conclusion
China’s invocation of its Blocking Rules is a watershed in the international law of sanctions, transcending beyond legislative dormancy to an active, enforceable, and commercially consequential instrument. India, which shares a comparable policy stance on unilateral sanctions, now faces a clear precedent. The absence of a domestic legislative framework leaves Indian entities commercially exposed in ways Chinese businesses no longer are. Whether India will translate its stated policy position into a comparable legislative instrument, and if it does, whether the framework will prove sufficient to recalibrate the commercial asymmetry that Indian businesses currently confront remains to be seen.
[1] China invokes anti-sanctions law to counter US blacklisting of refiners | Reuters, available here.
[2] MOFCOM Order No. 1 of 2021 on Rules on Counteracting Unjustified Extra-territorial Application of Foreign Legislation and Other Measures, January 9, 2021, available here.
[3] Official Spokesperson’s response to media queries regarding recent EU sanctions (July 18, 2025) | Ministry of External Affairs, available here
[4] Govt explores EU-like law to safeguard firms against third countries’ sanctions | The Indian Express, available here.