The Trump-Xi Summit Could Make or Break Iran Sanctions

The One Country America Can’t Sanction Into Compliance

Washington has announced “Operation Economic Outcast” against Iran. Treasury Secretary Scott Bessett said it will target digital assets, technology, gold, aviation and shipping dealings with Tehran. It also extends secondary sanctions — penalties on third-country banks and firms that continue trading with Iran — to any nation that dares maintain commercial ties with the Persian regime.

The plan sounds formidable on paper. In practice, it collapses unless one country agrees to play along: China.

China buys roughly 90% of Iran’s crude oil exports. According to World Bank data, Tehran shipped $22.4 billion in goods to Beijing in 2022 alone. That figure likely understates the current reality, as Iranian shipments through the Maritime Silk Route have accelerated under floating refineries and dark fleets that mask cargo origins. Iran’s financial system operates outside the dollar-clearing network that gives Washington its enforcement muscle. American sanctions have crippled Iranian refineries and shipping companies — but they have not touched the banks and trading houses that actually move the money between Tehran and Chinese ports.

Until those institutions face consequences, Bessett’s announcement is theater.

The structural problem is even deeper than the numbers suggest. Chinese independent refiners, often called “teapots,” process Iranian crude through a maze of shell companies and transshipment points across Southeast Asia. The financial architecture surrounding these trades relies on yuan-denominated settlements, barter arrangements, and a growing ecosystem of alternative payment systems designed specifically to circumvent SWIFT. Washington has watched this system mature over two decades of sanctions, and it has proven remarkably resilient — not despite American pressure, but because of it.

The Bluff Is Visible

The evidence is already there. Since the latest round of sanctions was unveiled, the US Treasury has targeted select Chinese refineries purchasing Iranian crude. It has not gone after the financial intermediaries — the banks, the traders, the correspondent accounts — that make those purchases possible. That gap is not an oversight. It is a deliberate line drawn to avoid provoking Beijing.

Daniel Taubenbaum, a senior fellow at the Atlantic Council, told the New York Times that sanctions remain empty talk until Washington takes real action against the “more important” countries and companies still trading with Iran. He was describing the exact moment we are in now.

Secondary sanctions are only as powerful as the credibility behind them. The US has spent years building that credibility against North Korea, Venezuela and Russia. Iran is a harder case because the primary buyer — China — sits outside the American legal jurisdiction that makes most secondary sanctions enforceable. Beijing has also demonstrated repeatedly that it views Iranian energy flows as a strategic asset, not merely a commercial transaction.

The parallel with previous sanctions regimes is instructive. When the US imposed secondary sanctions on Russian energy after the 2022 invasion of Ukraine, it had leverage because Europe absorbed the majority of Russian pipeline gas and refined products. China absorbs Iranian oil, and no equivalent economic relationship exists between Washington and Beijing that would make secondary sanctions on financial institutions anything short of catastrophic for bilateral trade.

The Trump-Xi Meeting Changes Everything

Next month, Donald Trump and Xi Jinping are scheduled to meet. The timing is not accidental. The US knows it cannot isolate Iran economically without Chinese compliance. And it knows that bringing the issue to the summit table is the only lever it has.

But the dynamics are awkward. Last year, Trump’s high tariff campaign against China triggered a tense standoff. The two sides eventually brokered a fragile trade truce, agreeing to a posture of “strategic stability.” Any attempt to weaponize sanctions against China’s Iran trade risks unraveling that arrangement just weeks before the leaders meet.

If Trump pressures Beijing too hard on Iran, he jeopardizes the broader trade relationship. If he backs down, the Iran strategy fails. Either outcome exposes the limits of American economic statecraft when the world’s second-largest economy has decided to look the other way.

The calculus becomes even more complicated when considering China’s own strategic calculations. Beijing benefits from Iranian oil at discounted prices, but it also worries about the precedent set by aggressive secondary sanctions enforcement. If Washington can compel compliance on Iran, why not on Taiwan? Why not on technology restrictions? Chinese policymakers have likely concluded that accepting some Iranian energy dependence is preferable to legitimizing a framework that could one day be turned against Chinese interests more directly.

Other Players Are Already Moving

While Washington deliberates, some US allies are responding to the new sanctions environment with surprising speed.

The UAE — historically one of Iran’s closest trading partners — suspended all commercial and financial transactions with Tehran ahead of the latest US announcement, saying it would wait for further notice. India, which once sourced most of its energy from Iran, abruptly halted Iranian oil purchases in 2019 after facing US secondary sanctions. It did not need a summit to learn the cost of defiance.

Turkey and Iraq tell a different story. Ankara imported 13% of its natural gas from Iran in 2024, and bilateral trade exceeded $5 billion. Baghdad maintains decades-old energy and electricity interconnections with Tehran that no US threat can rewire overnight. Both countries sit in a gray zone where American pressure meets regional reality.

These developments matter because they show the US can coerce smaller economies into compliance. The same leverage does not extend to Beijing.

The differential treatment reveals something important about American sanctions architecture: it works where economic asymmetry is overwhelming, where the target lacks alternatives, and where enforcement poses no systemic risk to US financial interests. Iran’s largest buyer possesses none of those vulnerabilities.

Second-Order Consequences

The failure to secure Chinese cooperation carries consequences beyond Iran. American credibility in enforcing economic measures depends partly on the perception that secondary sanctions are not selectively applied based on geopolitical convenience. If Beijing continues purchasing Iranian oil without consequence, other adversarial states will take note — including North Korea and Russia, both of which have explored Iranian drone and ammunition supplies for their own conflicts.

The energy market dimension matters as well. Iranian crude currently displaces other supplies in Asian markets, creating indirect price effects that ripple through global refining margins. If Chinese refiners face no constraint on Iranian volumes, OPEC+ production cuts lose some of their intended impact. The US has publicly advocated for reducing Iranian oil exports precisely to tighten global supply — but without Chinese participation, that objective remains theoretical.

Domestically, the tension between enforcement and escalation creates political friction. Hawks in Congress expect the administration to demonstrate results on Iran, while business groups warn against actions that could destabilize the broader economic relationship with China. The Trump-Xi summit will force that contradiction into the open.

What Happens Next

The Trump administration faces a choice it has not yet had to make. It can escalate secondary sanctions against Chinese financial institutions involved in Iran trade — a move that would directly challenge Beijing’s sovereignty and likely fracture the current trade truce. Or it can pursue quieter, bilateral diplomacy, offering incentives or concessions in exchange for Chinese restraint on Iranian sales.

Neither path guarantees success. China has calculated that Iranian oil is too strategically valuable to abandon — it provides discounted crude and strengthens Beijing’s diplomatic influence in the Middle East. And Washington has shown repeatedly that it will not sacrifice its broader Indo-Pacific priorities for a sanction regime that cannot close the largest leak.

The real question is whether the Trump-Xi summit produces even a partial deal. A Chinese commitment to reduce Iranian oil imports by a meaningful margin — say 30% or 40% — would represent a visible US victory and give Bessett’s “Operation Economic Outcast” some teeth. Complete enforcement is unlikely. Complete inaction is worse.

There is also the possibility of a side deal — some form of Chinese verbal assurance paired with American tacit acceptance of continued flows at reduced levels. That would satisfy neither hawks nor Iran’s adversaries but might preserve enough of the broader relationship to keep Washington’s other objectives intact.

For now, the announcement has changed the terms of the conversation. But conversations do not move oil. Only China can do that — and the summit will reveal whether it chooses to.