Why the US, China, and Iran Are Clashing Over Oil and Sanctions

China has called a new US threat of sanctions illegal and warned it will take "all necessary measures" to protect itself. The dispute is about China's trade with Iran, and it is pulling in not just money and oil but also military tensions at one of the world's most important shipping routes.

US Treasury Secretary Scott Bessent announced sanctions on 60 people, companies, and ships accused of trading with Iran. He called the campaign "Operation Economic Outcast." But the list did not include any Chinese banks, even though those banks are known to help finance Iran's oil trade. China buys about 80% of the oil Iran exports, according to The Guardian.

Sanctions are penalties that one country places on another to pressure it into changing behavior. The US has used sanctions against Iran for years to try to limit Iran's power. But these new ones are what experts call "secondary sanctions." Instead of just punishing Iran, they threaten to punish anyone else who keeps doing business with Iran. That puts countries like China in a bind: keep buying Iranian oil, or risk losing access to the US financial system.

Chinese Foreign Ministry spokesperson Lin Jian said China "firmly opposes illegal unilateral sanctions and would take all necessary measures to safeguard its rights and interests." A day earlier, on August 24, Beijing used softer language, saying it would "closely watch developments and do what is necessary to protect its rights" as the US prepared to unveil the new measures, per Reuters. The tougher tone came within 24 hours of the sanctions being formally announced.

The fact that no Chinese banks were sanctioned is striking, given how much oil trade they help support. Since 2019, when the US reimposed sanctions on Iran, China's major state-owned refineries have officially stopped buying Iranian crude. China's customs data shows no direct purchases of Iranian oil since that year, according to Reuters. But roughly 80% of Iran's oil exports still flow to China. That gap points to a hidden network of front companies, ships transferring oil to each other at sea, and payment methods that avoid regular banks entirely.

The sanctions announcement came with a military warning. US Defence Secretary Pete Hegseth said the US was not ruling out military strikes in or near the Strait of Hormuz, a narrow waterway between Iran and Oman. Hours later, an oil tanker was reportedly hit by an unidentified projectile at the entrance to the strait. No one has claimed responsibility.

Iran responded with threats of its own. Economy Minister Ali Madanizadeh said on state television: "Our defence is no longer so defensive; the enemies should wait for an attack." Two days earlier, on August 23, Iran's foreign minister called the new US sanctions a sign of desperation and predicted they would fail, Reuters reported.

Lin Jian has held regular press conferences throughout August, including daily briefings from August 17 through 25, according to the Chinese Ministry of Foreign Affairs. The ministry has previously spoken out against US unilateral sanctions, including on June 5, 2026, in response to US sanctions on the Cuban president and other individuals.

The broader context here matters. The sanctions list targets smaller players — people, companies, and ships — while leaving the Chinese banks that make the trade possible completely untouched. That appears to be a deliberate choice. Sanctioning Chinese banks would cross a line Washington has avoided since 2019, because it could trigger retaliation against US financial interests and damage the broader economic relationship between the US and China. By leaving the banks alone, the US keeps the threat available for later without having used it yet.

China's response follows a familiar pattern. Beijing argues that secondary sanctions violate its sovereignty — its right as a country to decide who it trades with. This is not just talk. It gives China a legal and political basis to push back, whether through international trade bodies, direct diplomatic channels, or alternative payment systems that do not rely on US dollars.

What sets this round apart from past sanctions cycles is the military element. Hegseth's mention of possible strikes, the tanker hit near the Strait of Hormuz, and Iran's aggressive language all raise the possibility that the sanctions campaign and a live security crisis in the Gulf could become one and the same. About one-fifth of the world's daily oil supply passes through the Strait of Hormuz. Any disruption there would push up oil prices, which would then feed into inflation — the rising cost of goods — in economies around the world.

For now, all sides are testing each other's limits. The US has shown it is willing to act on both the financial and military fronts but has stopped short of the most aggressive steps. China has talked tough without spelling out what it will actually do. Iran has dismissed the sanctions while adopting a more threatening tone. If the tanker strike turns out to be the start of a wider campaign against commercial shipping, the room for stepping back could shrink quickly.