How to Disrupt the China-Iran Oil Trade

To squeeze the Islamic Republic’s oil revenues, U.S. policy must understand that no Chinese company is too big to sanction.

President Donald Trump has embraced a strategy combining diplomacy and sanctions to prevent Iran from building a nuclear bomb. For such a strategy to be successful, it will be necessary to curb Iran’s illicit oil exports.

In February 2025, Treasury Secretary Scott Bessent vowed to slash Iran’s oil exports to 100,000 barrels per day, yet Iran exported 1.6 million barrels daily that month, primarily to China. Too often, Iran outmaneuvers existing sanctions with ship-to-ship transfers, falsified documents, and “shadow fleets.” To choke Tehran’s oil lifeline, the United States must overhaul its sanctions strategy, declaring no Chinese company will be too big to sanction.

Soon after taking office, the White House issued a National Security Presidential Memorandum to drive “Iran’s export of oil to zero, including exports of Iranian crude to the People’s Republic of China.” Since then, the administration has imposed multiple rounds of sanctions targeting the China-Iran oil trade, including designating Chinese “teapot” refineries like Shandong Shouguang Luqing Petrochemical and Shandong Shengxing Chemical for purchasing several billion dollars worth of Iranian crude. Sanctions have also targeted oil terminals, vessels, and executives to disrupt Iran’s shadow fleet and revenue streams funding its destabilizing activities.

Yet, this approach has proven insufficient; Iran’s average barrels per day exported to China in March declined by less than 200,000 barrels from February, meaning Iran could still export more than 1.5 million barrels of oil per day.

Because of China’s large share of international trade and its interconnectedness with the U.S. economy, Washington has remained cautious about targeting Chinese firms with extensive international footprints. However, Washington can coerce Beijing away from the Iranian oil trade while minimizing any shock to the market. By targeting corporate officers of major Chinese firms involved in the Iran oil trade, the United States can disrupt Beijing’s willingness to help Tehran evade sanctions.

The Treasury’s Office of Foreign Assets Control (OFAC) can designate these executives as Specially Designated Nationals (SDNs) for facilitating sanctions evasion, financial transactions with Iran, or providing sanctioned entities with financial services. OFAC’s 50 Percent Rule would then block entities with an ownership composed of 50 percent or more SDNs from U.S. dollar transactions and freeze their assets. Even if the SDNs do not have majority ownership, sanctions can apply if the sanctioned individual exerts significant control. This approach forces firms to purge SDN-linked leadership or face crippling penalties.

The 2018 sanctions on Russian aluminum giant Rusal offer a model to follow. OFAC designated oligarch Oleg Deripaska and other board members, triggering the 50 Percent Rule against Rusal due to Deripaska’s ownership stake.

The designation disrupted global aluminum markets, but Treasury’s clear delisting conditions—requiring Deripaska’s divestment below 50 percent and resignation from the board—led to compliance. By issuing general licenses to mitigate market shocks, the Treasury secured Rusal’s restructuring and achieved U.S. objectives.

Targeting small “teapot” refineries will never be enough to sever the lifeline China offers Iran. Sanctioning board members and shareholders of strategically significant Chinese firms in Iran’s oil trade can create a cascade of sanctions and compliance across subsidiaries.

To mitigate market shocks, the Treasury can issue general licenses, as with Rusal, allowing global firms time to sever ties while forcing divestment from SDN-linked actors. Creating chaos in Chinese corporate structures will signal that collusion in Iran’s oil trade carries steep costs.

Such proactive efforts by the Treasury to couple sanctions with the provision of general licenses and other tools to mitigate market impact can help the United States achieve its goals while both minimizing market shocks and diplomatic resistance among allies. Iran’s oil exports thrive on China’s complicity, but the United States has the tools to act decisively. The question now is not one of ability but rather will.