Why China Refuses to Comply with US Sanctions on Iran

The Shanghai Cooperation Organization (SCO) summit in Bishkek (Aug 31–Sep 1) served as a platform for open defiance of US sanctions on Iran. Iranian President Masoud Pezeshkian attended the event.

The summit's joint statement called for establishing a new development bank that, in Russian President Vladimir Putin's words, would have “maximum independence from the financial system of countries that use economic tools to gain unilateral advantage in international relations.”

The summit came just one week after Washington unveiled its latest sanctions package against Tehran. Instead of being isolated, Iran received a warm welcome in Bishkek, underscoring Washington's growing difficulty in securing global compliance with its measures.

China is Washington's biggest obstacle on this issue. Beijing once again sided with Iran, not out of moral or ideological motives, but because it can and has vested interests to do so.

Sanctions Prove Ineffective

China currently buys up to 90% of Iran's oil exports, single-handedly sustaining the Iranian economy. Beijing has circumvented US sanctions through a network of “shadow fleet” vessels (ships that conceal the Iranian origin of cargo) and small-scale private refineries, often called “teapots.”

In response to Washington's “with us or against us” ultimatum, a Chinese Foreign Ministry spokesperson said: “China will do everything necessary to resolutely safeguard its rights and interests.” After multiple trade wars with the United States, China has developed a high tolerance for economic pain inflicted by Washington and is not easily intimidated.

For Beijing, external interference in bilateral trade relations with a third country is unacceptable. More importantly, Beijing regards Washington's threat as ineffective.

China is well protected from secondary sanctions related to Iran. Chinese banks and companies dealing with Iran often settle payments in renminbi or barter arrangements, making them nearly immune to US extraterritorial jurisdiction.

Meanwhile, the few Chinese companies that still pay in US dollars are often hidden behind layers of shell companies that can be discarded at low cost. This forces Washington into an endless game of “whack-a-mole,” where each sanctioned entity is quickly replaced by another.

The US could sanction major Chinese banks and companies unrelated to Iran to exert pressure, but that would invite similar retaliation from Beijing. With the US economy under strain and midterm elections approaching, a confrontation with China is something Washington would rather avoid.

Iran Must Not Fail

Beyond ineffective sanctions, China has another motivation to side with Iran: if Iran were to collapse, the entire Middle East could swing back into the US orbit.

From Beijing's perspective, regional countries seeking alternative security partners would be forced to seek protection under the US security umbrella. That would not only deal a heavy blow to China's growing influence in the region but also complicate future cooperation on high-tech fields such as 5G, artificial intelligence, and defense.

More critically, China's energy interests could be endangered. China imports 40% of its oil from the Gulf, of which Iran accounts for 10%. If the bulk of its oil imports fell under the influence of US-aligned nations, China's economic lifeline would rest in Washington's hands.

An Iranian victory would also encourage the US to continue pursuing regime change in countries closely tied to China, making it harder for Beijing to protect its overseas interests, as seen in Panama's seizure of two Chinese-operated ports under US pressure.

China's Caution

Still, China does not view itself as a close ally of Iran, as evidenced by its reluctance to step up support. Beijing fears that if Iran achieves a complete victory, Tehran might pursue regional hegemony, deepening rifts with Gulf states and undermining China's diplomatic efforts to mend relations.

Beijing maintains a measured distance from Tehran. The fact that President Pezeshkian has not been invited to Beijing shows that Chinese authorities do not want too tight an embrace. At the SCO summit, the Chinese leader met with Russian and Indian counterparts but held no formal meeting with Pezeshkian, only consultations at the foreign-minister level.

The message is subtle but clear: Beijing values the relationship but keeps it at arm's length.

Balancing with Washington

Relations with the US, although competitive, remain crucial to Beijing. Rebuilding China-US ties is a top priority, reflected in two high-level meetings this year: US President Donald Trump's visit to Beijing in May and Chinese President Xi Jinping's planned trip to Washington later this month.

During that visit, the two leaders announced an agreement to build a “constructive China-US relationship for strategic stability,” with cooperation as the core, competition within bounds, and avoidance of zero-sum games.

In that context, offering too much support to Iran would backfire. Beijing has stayed out of the conflict and pledged not to supply weapons to Iran. Washington has acknowledged this: in June, President Trump publicly thanked China for maintaining a “perfectly neutral” stance.

The Trump administration is also well aware of China's economic interests in Iran and may not be surprised by Beijing's position on the new sanctions. The only way out of this impasse is for Washington to abandon hegemonic thinking and return to the negotiating table—a step that would ease difficulties for the US itself and the world.