China has said it will keep cooperating with Iran despite Washington's new sanctions campaign, in a rebuff that undercuts the reach of what the US has billed as the largest financial offensive ever mounted against Tehran, Chinese foreign ministry spokesperson Lin Jian said on August 25.

The Chinese statement lays bare the central weakness of the US strategy launched in recent days following a reduction in war in recent weeks. Around 90% of Iran's oil exports go to China, which has never recognised US sanctions and shows no sign of doing so now, leaving Washington reliant on a campaign of secondary measures it may lack the appetite to fully enforce. The rhetoric has been sweeping from the US administration and flailing in kind. US President Donald Trump has cast the drive as an "economic D-Day," a reference to the Allied landings in Normandy, and Treasury Secretary Scott Bessent has said no one is above the reach of US sanctions.

Lin said Beijing would do everything possible to protect its interests in response to US restrictions on countries trading with Iran, repeating China's long-held position that unilateral sanctions imposed without UN Security Council approval breach international law. Responding to Bessent's call for China to support an economic blockade of Iran, Lin said such measures did not serve China's interests and would only escalate conflict, undermine international law and create fresh economic and financial risks worldwide. He said Beijing would continue to cooperate with Tehran regardless. Well, that's that then. 

China's defiance is not new, and it has been politely snubbing Trump and his machinations for weeks already. Its commerce ministry blocked US sanctions on five Chinese refiners earlier this year, calling them a violation of international law and the basic norms governing international relations. This pattern runs through the entire architecture of the Iran-China oil trade, which has been built specifically to sidestep Western enforcement. State-owned Chinese refiners largely stopped handling Iranian crude years ago over sanctions concerns, leaving the trade to smaller independent "teapot" refineries that absorb the bulk of Iran's exports, often paid for in yuan through smaller, US-sanctioned Chinese banks.

Iranian oil sales to China fell to two-year lows late last year as earlier US sanctions on teapots bit, and bilateral trade between the two countries plunged 24% to $9.09bn in the first 11 months of 2025, as Chinese buyers grew more cautious over secondary sanctions and shifted towards discounted Russian crude. Even so, Chinese state media and the commerce ministry have consistently stressed that energy trade with Iran remains substantial and strategic cooperation continues. Also, a reminder China is not too impressed with US and EU sanctions on Russia either. 

A blockade that did the work first

The new sanctions may add less than the fanfare suggests, because the damage to Iran's oil revenues has largely been done already. Capital Economics called the direct impact of the "economic D-Day" on Iranian energy income "somewhat of a damp squib," not because the package is small, but because the naval blockade reimposed in mid-July has already slowed Iran's oil exports to a near standstill, according to CENTCOM. In a note by chief climate and commodities economist David Oxley, the research house argued the sanctions add little precisely because they are aimed at China.

Before the war, Iran accounted for 4-5% of global oil production and about 2% of global oil exports. Oxley wrote that China "has not recognised US sanctions in the past and is unlikely to be cowed this time either," noting Beijing's earlier move to block penalties on its refiners.

There is a second constraint, and it is about leverage rather than law. China's ability to hit back by restricting access to rare earths means Washington "would probably have to tread carefully and/or be selective in enforcement," Oxley wrote, and the administration may be unwilling to cause offence before Chinese President Xi Jinping's planned US visit next month. That calculation matters, because China holds cards well beyond oil. Beijing has been steadily diversifying away from US Treasuries and expanding yuan-based settlement across Asia, giving it room to absorb financial pressure that would cripple a smaller economy.

The yuan is central to how the trade survives, and Iran has moved to expand yuan-based settlement with China, settling a growing share of imports in the Chinese currency as a hedge against dollar dependency and sanctions exposure. Every barrel priced in yuan and cleared through a sanctioned Chinese bank is a barrel Washington struggles to see, let alone stop.

Where the pressure actually is

Where Oxley does see effect is inside Iran and its power structures. The US blockade "has already cut Iran's financial lifeline," he wrote, and the loss of hard currency income will require domestic demand to stay extremely depressed and probably fuel inflation, reported to be running at around 80%. The UAE has effectively acted as Iran's day-to-day banker since the 1980s, and anyone who knows Sheikh Zaeid Road will know the sign of Iranian banks that lined it. Dubai in a sense as been bureaux de change for Iran, and that service appears to have abruptly stopped with large seizures of Iranian cash and accounts. 

The rial has fallen sharply against the dollar on the parallel market in recent days, hitting a record low of around IRR2,020,000 to the dollar on August 24, according to the Associated Press, which reported that prices for basic goods have risen sharply since the conflict began and that the International Monetary Fund (IMF) expects the Iranian economy to contract by more than 5%.

The strain is visible on the streets, with petrol queues forming in limited places in Tehran and an official admission that the country is 15mn litres short of the fuel it needs each day. The Pezeshkian administration also appears to be on the verge of increasing the government-set price of a litre of fuel, which is now effectively free. 

Iran's economy minister, Ali Madanizadeh, struck a defiant note regardless, telling state television the government had prepared a two-year action plan for tougher restrictions and expected to preserve its foreign economic ties. "They can't cut off our financial channels," he said, predicting the US would suffer "yet another defeat" and adding that Tehran did not believe China and Russia would fall in behind the American line.

Washington has some evidence its pressure is landing on softer targets. The UAE suspended trade, commercial exchanges and financial transactions with Iran last week, citing regional escalation, a move US officials read as a sign their diplomacy is bearing fruit.

Iran's remaining leverage lies offshore. It retains influence over the Strait of Hormuz, the strategic waterway through which roughly a fifth of the world's seaborne oil passed before the conflict, and China itself is heavily exposed to any disruption there, holding some 900mn barrels in strategic storage as a buffer against exactly this kind of shock.

Whether economic pain forces concessions depends, Oxley wrote, on "which factions are in the ascendency," with moderates including President Masoud Pezeshkian said to be concerned about economic collapse and to have pushed for Iran to accept the June memorandum of understanding, though "the regime is highly divided."

The historical parallels Oxley reaches for are not encouraging for Washington. History provides plenty of cases of regimes that held onto power despite economic collapse through repression and patronage, he wrote, citing Cuba after 1959 and Venezuela from 2012.

The note allows that if the announcement accelerates or delays an end to the war, it could yet have a sizeable and lasting indirect impact on the global energy landscape, which is a way of saying the sanctions matter less for what they do to Iranian barrels than for what they do to the odds of the chokepoint reopening. On that question, Beijing has now given its answer.