China will decide whether Trump’s economic warfare against Iran succeeds or fails

The Trump administration has described its latest sanctions strategy against Iran as an economic D-Day, a campaign intended to sever Tehran's remaining economic lifelines. The strategy, however, depends almost entirely on a single actor over which Washington has limited influence. China is Iran's largest trading partner and its principal economic connection to the outside world, and Beijing's choices will determine whether the sanctions regime proves effective or largely symbolic.

China's leverage rests first on oil. It purchased more than 80 per cent of Iran's crude exports in 2025, and any sanctions campaign that does not address Chinese purchases is unlikely to achieve much. Choking off Iran's remaining revenue is difficult without confronting Chinese companies directly. Private "teapot" refiners have become the preferred route around restrictions, importing and processing Iranian crude while China's state-owned sector largely observes American rules in order to preserve its access to the US financial system. In May, however, Beijing instructed domestic firms not to comply with sanctions imposed on five Chinese refiners, a signal of how selectively that compliance is applied.

Chinese assistance to Iran extends beyond energy markets. There have been reports of security-related support from Chinese companies, kept below the threshold of overt military involvement, including shipments of dual-use components, intelligence assistance and sodium perchlorate, a precursor used in missile propellant. Such flows keep Iran connected to the global economy and work against what Washington has termed economic asphyxiation.

The same leverage could be exercised in the opposite direction. China could, in principle, make the sanctions work by choosing compliance in order to protect its own considerable economic interests. Washington's primary instrument for compelling that outcome is the secondary sanction, which targets any foreign entity conducting business with Iran. For China's financial sector, this represents a serious concern. Its largest banks are caught between Beijing's instructions and the risk of losing access to the American financial system, and because these institutions are deeply integrated into global commerce, they have historically preferred compliance with US restrictions over exclusion from it. If Washington can compel these banks to cooperate, Iran's capacity to conduct international transactions would be considerably diminished.

There is a historical precedent for this. The sanctions campaign that eventually brought Iran to negotiate the 2015 nuclear accord succeeded largely because it secured broad cooperation from major buyers, including China. Without similar cooperation, Operation Economic Outcast is unlikely to isolate the regime sufficiently to force it back to the table.

China, however, is unlikely to face the full weight of American enforcement. Blacklisting major Chinese companies would risk a destabilising economic confrontation between the two countries, a prospect Washington is reluctant to entertain ahead of a planned summit next month between Donald Trump and Xi Jinping. Targeting Chinese banks directly would carry similar risks. Beijing would likely regard such a move as a breach of the existing truce and could respond by restricting exports of critical minerals essential to global manufacturing, or by limiting pharmaceutical exports to the United States.

The broader economic context adds further caution to Washington's calculations. The conflict has already closed the Strait of Hormuz, produced energy price shocks, contributed to global inflation and raised shipping and insurance costs considerably. Treasury Secretary Scott Bessent has acknowledged that an aggressive expansion of secondary sanctions could unsettle the global financial system itself, a risk few in Washington appear willing to take.

China's own economic preparation adds to American woes. Decades of diversifying its oil sources, building the world's largest crude reserves and electrifying its transport sector have left it comparatively insulated from external energy shocks. This resilience reduces China's exposure to the kind of pressure that might otherwise persuade it to cooperate, and correspondingly strengthens its position in resisting American coercion.

Ultimately, it will be China, rather than Washington, that determines whether the American economic offensive achieves its aims.