China Condemns New US Sanctions on Iran as 'Illegal', Warns of Trade Isolation

Washington threatens to isolate nations that continue business with Tehran as Beijing pushes back over oil trade

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By LineZotpaper

Published26 August 2026

Read Time3 min

China has denounced the latest round of US sanctions targeting Iran and its trading partners as 'illegal', warning that Washington's threat to isolate nations doing business with Tehran risks destabilising global energy markets and undermining multilateral trade norms. The new measures, announced by the US Treasury this week, seek to cut off revenue streams to Iran's oil sector, which sells the majority of its crude to China.

In a sharply worded statement issued on Tuesday, China's Ministry of Foreign Affairs rejected the expanded US sanctions regime, calling it a violation of international law and an abuse of unilateral power. 'These so-called sanctions are illegal and have no basis in international law,' the statement read. 'China firmly opposes the extraterritorial application of US domestic law and will take necessary measures to protect the legitimate rights and interests of its enterprises.'

The US Treasury's Office of Foreign Assets Control (OFAC) imposed sanctions on a network of Chinese companies and tanker operators accused of facilitating Iranian oil exports, alongside new designations targeting Iranian entities linked to the country's ballistic missile program. The US has also warned that it will consider 'secondary sanctions' against any nation that continues to 'significantly' trade with Tehran.

Beijing is Tehran's largest oil customer, purchasing more than 800,000 barrels per day in 2025, according to tanker tracking data. Analysts note that the latest US push is an attempt to close a longstanding loophole: Chinese refiners, many of them small private 'teapot' plants, have been found to import Iranian crude under disguised labels or via ship-to-ship transfers.

The escalation comes as diplomatic efforts to revive the 2015 Joint Comprehensive Plan of Action (JCPOA) remain stalled. The US reimposed sanctions under President Trump in 2018 after withdrawing from the deal, and while President Biden had initially pursued a return to the agreement, talks collapsed in 2023 over Iran's nuclear advances and US demands.

US officials argue that the sanctions are necessary to prevent Iran from acquiring a nuclear weapon and to cut off funding for proxy groups across the Middle East. 'Iran's oil revenue directly supports terrorist networks and its nuclear program,' a State Department spokesperson said, speaking on condition of anonymity ahead of a formal briefing. 'We are determined to enforce these sanctions vigorously.'

China counters that the unilateral measures undermine the authority of the UN Security Council, which has passed multiple resolutions sanctioning Iran but has not authorised the broad, extraterritorial penalties the US now applies. 'The US cannot act as the world's policeman,' said Professor Zhang Ming, a trade policy expert at Fudan University. 'If Washington isolates everyone who trades with Iran, it isolates itself from the principles of the rules-based trading system.'

Iran's Foreign Ministry welcomed China's stance, describing the US sanctions as 'economic terrorism' and vowing to continue oil exports through alternative channels. Tehran has been stockpiling crude in floating storage and using barter trade with intermediaries to bypass financial restrictions.

Analysis

Why This Matters

The US-China sanctions dispute risks further fracturing global trade at a time when supply chains are already strained by the Ukraine conflict and Red Sea shipping disruptions.
Higher oil prices could result if Iranian exports are significantly reduced, given OPEC+ spare capacity is limited and China may seek alternative supplies from Russia or the Middle East at a premium.
The standoff tests the limits of dollar hegemony: if China develops bilateral payment systems with Iran using yuan or digital currencies, it could accelerate de-dollarisation trends.

Background

The US has maintained primary sanctions on Iran since the 1979 revolution, but secondary sanctions — penalties on third-country entities — were greatly expanded after President Trump withdrew from the JCPOA in 2018 under a 'maximum pressure' campaign. President Biden initially loosened enforcement to revive the nuclear deal, but after talks failed, the administration resumed aggressive oil sanctions enforcement in 2024. This latest round targets Chinese teapot refineries and shipping insurers that have been a key channel for Iranian oil, estimated at up to 1.5 million barrels per day at peak.

Key Perspectives

United States: Argues sanctions are a necessary non-proliferation tool and that Iran's nuclear breakout time has shrunk to weeks. Warns that any country enabling Iranian oil exports is complicit in funding destabilising activities. China: Considers the extraterritorial sanctions a violation of its sovereignty and a threat to free trade. Beijing frames the dispute as a broader challenge to the UN-centred international order and has intensified efforts to build alternative payment systems. Iran: Sees the sanctions as illegal coercion but has limited leverage aside from threatening to disrupt Strait of Hormuz traffic. Tehran is deepening its strategic partnership with China in energy and defence. Critics/Skeptics: Some analysts question the effectiveness of secondary sanctions, noting that China and Iran have already developed evasion tactics (ship-to-ship transfers, barter trade, use of UAE middlemen). Others argue the US risks alienating allies in Southeast Asia that also import Iranian oil.

What to Watch

Oil price movements in the coming weeks, particularly the Brent-WTI spread and China's import data.
Whether the US designates any additional Chinese state-owned banks — a move that would sharply escalate tensions.
Iran's response: potential increases in nuclear enrichment stockpiles or proxy attacks on US assets in the Middle East.
Diplomatic signals: any overtures from China or the US to resume discussions, or a referral of the sanctions dispute to the International Court of Justice.

Sources

China hits out at 'illegal' new US sanctions on Iran and trading partners — BBC News