The U.S. has intensified sanctions targeting entities, including Chinese banks, that facilitate Iran’s oil trade, warning they will be cut off from the American financial system if involved in sanctions evasion. This pressure comes as China remains Iran’s largest trading partner, previously accounting for about 90% of Iran’s oil exports and 12% of China’s crude imports. U.S. Treasury Secretary Scott Bessent explicitly threatened Chinese banks over their involvement, while China has vowed to protect its interests against what it calls “illicit unilateral sanctions.”

Despite Washington’s sanctions, China continues to seek ways to maintain its access to U.S. dollar financing while reducing dependency on it. China’s Cross-Border Interbank Payment System (CIPS), developed by the People’s Bank of China since 2012, offers an alternative payment channel largely outside the dollar-dominated SWIFT system. The volume of transactions through CIPS has grown since the Russia-Ukraine conflict, signaling China’s intentions to hedge against sanctions risks without completely abandoning the dollar-based global financial system. Currency swap agreements with countries like Argentina and Australia further support this diversification effort.

The U.S. dollar remains dominant in global payments and trade finance, with over half of cross-border payments and nearly 80% of trade finance conducted in dollars. In contrast, China’s yuan holds a modest 3.1% share of global payments and 8.4% in trade finance. Analysts suggest China wants to remain within the dollar system due to the benefits it provides for trade, but will resist full compliance with U.S. sanctions, potentially retaliating with measures like rare earth export controls. The strategic rivalry and economic interdependence complicate Washington’s efforts to fully isolate Chinese banks involved with Iran.

Amid these tensions, a summit between U.S. President Donald Trump and Chinese President Xi Jinping is scheduled for the following month, raising hopes for managing the complex U.S.-China relationship. Experts note that while issues involving Iran are contentious, the core of their relationship centers on Taiwan tensions. Beijing is wary of risking its banks’ removal from the global financial messaging systems, as this would destabilize China’s currency and broader economy. The upcoming talks may test how both powers navigate these economic pressures without derailing broader diplomatic ties.