Why China matters to Trump’s Iran sanctions and how far can Beijing push back? Explained

United States Treasury Secretary Scott Bessent on Monday unveiled a new wave of sanctions – Operation Economic Outcast – targeting nearly 60 entities, people and vessels over Iran trade. The measures broaden secondary sanctions to cover sectors like shipping, gold, aviation, technology and digital assets

Bessent notes the aim was to sever every economic lifeline sustaining the government in Tehran until it stands alone. Though he did not name China directly, his remarks signalled that Washington expects major trading partners, including Beijing, to reduce their economic ties with Tehran.

When asked specifically about Chinese banks, Bessent said, “If they facilitate transactions and are part of the ecosystem that turns Iranian oil into money, into repression, they will be targeted.”

We break down the depth of Iran-China trade ties, how Beijing has responded to Washington’s pressure, and whether China can afford to ignore US pressure. We also examine India-Iran trade relations and the potential impact of the new US sanctions on Indian businesses and on economic ties with Tehran.

Why does China matter to US sanctions?

China is Iran’s biggest buyer of crude, accounting for roughly 90% of the country’s oil exports, according to the US government.

China reported $9.96 billion in bilateral trade with Iran in 2025, excluding the roughly $31.2 billion in unreported Iranian crude oil exports to China that year, according to the U.S.-China Economic and Security Review Commission.

Independent Chinese refiners take in the bulk of it, often rebranded as Malaysian or Indonesian crude and settled through intermediaries outside the dollar system, according to Kpler. Several of these refineries have been sanctioned by the US Treasury this year for buying Iranian oil.

So, China will play a key role if the US aims to cripple Iran’s economy, given its position as Tehran’s biggest oil buyer. But Washington may struggle to bring Beijing on board, as China continues to defend its economic ties with Iran.

What did China say?

Reacting to the US sanctions, Foreign Ministry spokesman Lin Jian, in an official reaction, said it opposes unilateral sanctions and warned they risk worsening conflicts. The most urgent task is to de-escalate tensions and return to negotiations, he said.

When asked about Beijing’s response to the US steps against Iran and threats against its trading partners, Lin reiterated that China would act to protect itself.

“China’s cooperation with Iran has always been conducted within the international framework and should not be interfered with or undermined,” he said and added, “China is closely monitoring relevant developments and will take all necessary measures to firmly safeguard its own interests.”

Can China really afford to ignore US pressure?

For China, it is not entirely possible to ignore US pressure, as it needs to remain in the US dollar-based financing system.

Though China’s Cross-Border Interbank Payment System, or CIPS, is trying to diversify from dollar-centred finance, it cannot ignore the system altogether.

The People’s Bank of China launched CIPS in 2012, the same year the US Treasury sanctioned China’s Bank of Kunlun over its dealings linked to Iran. It further gained momentum since Russia’s invasion of Ukraine in 2022, as sanctions pushed countries to explore alternatives to dollar-based payment channels. Currently, CIPS has 210 direct participating institutions worldwide, most of them affiliates of Chinese state-owned banks.

However, the emerging financial system isn’t necessarily one in which countries abandon the USD. It is a geopolitical hedging instrument, said Peter Alexander, Shanghai-based managing director of advisory Z-Ben, told CNBC.

But Beijing cannot be easily strong-armed, as it has significant leverage over Washington. China controls much of the global supply chain for rare earths, which are essential for products ranging from smartphones to missiles. Xi used China’s dominance last year to push back against Trump’s tariff campaign, giving Beijing a powerful bargaining tool.

Right now, China has to balance its ties with Iran against the risk of upsetting Washington, especially with US President Donald Trump and Chinese President Xi Jinping due to meet in Washington next month to keep their trade truce on track.

(With inputs from CNN, CNBC and Bloomberg)