China is the Largest Buyer of Iranian Oil; Can Trump Change the Situation with Sanctions?

The United States, in its first sanctioning action under the new Donald Trump administration, has imposed sanctions on a network of individuals and companies accused of facilitating the sale of millions of barrels of Iranian oil to China. Donald Trump is attempting to bring the Islamic Republic of Iran's crude oil exports to zero. The new round of sanctions is considered the first warning action against Beijing and Tehran, designed to target China without halting informal negotiations to explore the possibility of an agreement with the Iranian government to limit its nuclear program. Analysts say these sanctions, which target individuals and vessels associated with Iran's 'shadow fleet' for transporting sanctioned oil, could be impactful but cannot bring Iranian oil exports to zero. Achieving this goal would require stricter measures, such as sanctioning Chinese entities including banks that process oil transactions, but such actions could escalate tensions between the two leading economies. Tom Keating, director of the Centre for Financial Crime and Security Studies at the Royal United Services Institute (RUSI) in London, states, 'This is just an initial action, but not because Trump necessarily intends to act cautiously. Rather, it is a way to send a warning message to all those involved in the transportation of Iranian oil.' Why has Trump targeted Iran? The Iranian economy is heavily dependent on oil revenues, and the U.S. State Department claims that the Islamic Republic uses its oil revenues to fund 'terrorist groups and proxy forces' in the region. The new U.S. sanctions have targeted over 12 individuals and companies in China, India, and the United Arab Emirates, including Iranian and Indian nationals, ship management companies, and several oil tankers. Nader Eitam, a Middle East energy expert at Argus Media based in the UK, says, 'These sanctions—and those that are likely to follow—will certainly be impactful. But the key question is how much impact this will have? Ultimately, it depends on how serious the Trump administration is about confronting Iranian oil trade.' The nuclear agreement known as the JCPOA lifted U.S. sanctions in 2015 and allowed Iran to sell oil. However, Trump withdrew from this agreement in 2018 and imposed sanctions that reduced Iranian oil exports to about 400,000 barrels per day. The Islamic Republic later increased its oil sales by circumventing sanctions, benefiting from rising Chinese demand and reduced U.S. oversight during Joe Biden's presidency. The new sanctions are part of Trump's return to the 'maximum pressure' campaign that was his main policy against Iran during his first term. Trump claims that Iran is 'too close to building a bomb,' but Tehran has consistently emphasized that its nuclear program is peaceful. Tom Keating states, 'One of Trump's current goals is to bankrupt Iran. Since [Trump] became president, the sanctions community—both public and private—has learned a lot about targeting a country's oil revenues and its broader infrastructure, mainly through experiences gained with Russia's shadow fleet.' How does the shadow fleet operate? Iran uses a 'shadow fleet' of oil tankers to circumvent sanctions and secretly transfer its oil to China and other countries. This strategy involves ship-to-ship transfers, the use of intermediaries, conducting covert financial transactions, and changing the branding of oil to disguise its Iranian origin and mislabel it as oil from another country. These methods have allowed the Iranian government to continue exporting oil and generating revenue despite sanctions. According to data from the United Against a Nuclear Iran, a non-governmental group opposing the Islamic Republic's nuclear program, Iran exported approximately 587 million barrels of oil in 2024, 91% of which went to China. Based on data from the research firm Kpler, China officially stopped buying oil from Iran in 2022 to avoid U.S. sanctions. However, billions of dollars of sanctioned Iranian oil have still reached China through the shadow fleet network. What is Trump's next step? U.S. officials have been trying to pressure China and other countries to refrain from participating in these transactions and to impose sanctions on tankers involved in transporting Iranian oil to prevent Iranian oil exports. The latest round of sanctions has targeted tankers and shipping companies associated with Iranian oil exports. Tom Keating states, 'These sanctions represent the development of a method that the United States and its allies have employed in recent years against Russian oil tankers.' He believes that sanctions could extend beyond oil tankers to target other infrastructure of Iran's shadow fleet, such as: companies that provide insurance for these vessels, agencies that recruit ship crews, ports that accept these vessels, and diplomatic pressure on countries that register these tankers. Nader Eitam believes that such actions may scare 'risk-averse Chinese buyers,' but will have limited impact on reducing Iranian oil exports. He states, 'To further reduce Iranian oil exports, more pressure will be needed on ports, buyers, and Chinese intermediaries, including banks in that country.' However, such actions could further strain Washington-Beijing relations, which have recently been tense due to new tariffs. Keating states that reducing Iranian oil exports could be part of broader negotiations between Trump and Chinese President Xi Jinping. He adds, 'China is the biggest challenge in limiting Iranian oil, but does Trump really want a sanctions war with Xi?'