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<div class="gmail-inner-article-top"><h1 class="gmail-">China\u2019s counter-sanctions shield: How Beijing is turning the Iran war into a petroyuan test</h1><p class="gmail-">Washington\u2019s
sanctions weapon is meeting a market too large to isolate \u2013 and a legal
order Beijing now appears willing to enforce</p><div class="gmail-another-name"><p><a href="https://thecradle.co/authors/cynthia-chung-56" style="color:rgb(164,4,4)">Cynthia Chung</a></p></div><div class="gmail-another-name" style="margin-top:16px"><p><span style="color:rgb(84,88,94)">MAY 14, 2026 - </span><font size="1"><a href="https://thecradle.co/articles/chinas-counter-sanctions-shield-how-beijing-is-turning-the-iran-war-into-a-petroyuan-test">https://thecradle.co/articles/chinas-counter-sanctions-shield-how-beijing-is-turning-the-iran-war-into-a-petroyuan-test</a></font></p></div></div><div class="gmail-inner-article-img"><img src="https://thecradle-main.oss-eu-central-1.aliyuncs.com/public/articles/a2554a0c-4fab-11f1-bf2c-00163e02c055.jpeg" alt="" width="524" height="248" style="margin-right: 0px;"><span>Photo Credit: The Cradle</span></div><div class="gmail-inner-article-content"><div class="gmail-row"><div class="gmail-col-md-8 gmail-col-sm-7"><div class="gmail-article-content"><span class="gmail-article-body"><p>When US President Donald Trump visited Beijing on 14 May, <a href="https://thecradle.co/articles-id/37679">flanked</a> by top American industrialists, the optics told their own story. Washington came armed with tariffs, secondary <a href="https://thecradle.co/articles-id/37649">sanctions</a>,
port fees, and threats over maritime chokepoints. But the executives at
Trump\u2019s side revealed the weakness behind the pressure campaign \u2013 the
US cannot cut China out of the global economy without cutting into
itself.</p><p>That confrontation explains why Trump\u2019s Beijing delegation
mattered. The presence of American executives from finance, technology,
manufacturing, and logistics was not a show of US strength alone. It
was an admission that corporate America still needs the Chinese market,
supply chain, and payments ecosystem at the very moment Washington is
trying to discipline all three. That contradiction now sits at the
center of the present global crisis.</p><p><strong>Beijing draws its legal lines</strong></p><p>That
is the real context for Beijing\u2019s new legal architecture. On 7 April
2026, the Chinese State Council promulgated Decree No. 834, the
Regulations on the Security of Industrial and Supply Chains. Less than a
week later, on 13 April, it issued <a href="https://www.morganlewis.com/pubs/2026/04/china-issues-new-regulations-on-countering-foreign-extraterritorial-jurisdiction-what-mncs-need-to-know">Decree No. 835</a>, the Regulations on Countering Foreign Improper Extraterritorial Jurisdiction. Both took effect immediately.</p><p>Together,
these measures mark a shift from reactive Chinese complaints about US
overreach to a formal countersanctions framework that can target
commercial conduct, regulatory compliance decisions, cross-border legal
conflicts, and foreign attempts to impose unilateral rules on Chinese
entities. </p><p>Beijing has turned Washington\u2019s sanctions regime into a
legal battlefield, arming itself to punish the governments, firms, and
institutions that enforce US extraterritorial pressure.</p><p>This is
why the US war against Iran now carries consequences far beyond West
Asia. It is testing the dollar\u2019s role as the currency of global oil
trade and accelerating the emergence of Chinese-backed payment channels
designed to bypass the western financial system. As Iran holds firm over
the Strait of Hormuz, negotiations are taking shape for <a href="https://thecradle.co/articles/xi-of-arabia-and-the-petroyuan-drive">yuan-traded oil</a> in return for safe passage through the waterway.</p><p>Iran\u2019s parliament has also <a href="https://economictimes.indiatimes.com/news/international/world-news/irans-parliament-security-committee-approves-plan-to-impose-tolls-on-strait-of-hormuz/articleshow/129916278.cms">officially approved</a>
the implementation of tolls of up to $2 million on oil vessels
transiting through the strait, which are also likely to be paid in yuan.</p><p>Deutsche Bank <a href="https://www.bloomberg.com/news/articles/2026-03-25/iran-war-could-be-making-of-the-petroyuan-deutsche-bank-says">has stated</a>
that the Iran war could be the making of the petroyuan. That would
signify the end of US dominance over global finance and trade, and with
it, Washington\u2019s self-appointed role as the world\u2019s policeman.</p><p>The
petrodollar is the foundation of dollar dominance in world trade. It
sustains the dollar as the global reserve currency and gives Washington
its \u2018<a href="https://thecradle.co/articles-id/1303">big stick</a>\u2019: the ability to weaponize sanctions, isolate individuals and institutions, and cut entire states off from global commerce.</p><p>In response to this threat, the US Treasury Department has issued <a href="https://x.com/USTreasury/status/2044122873036673130">another warning</a>:
any financial institution caught supporting Iran may face secondary
sanctions. At this stage, the policy resembles economic carpet bombing.</p><p></p><div class="gmail-columns-box gmail-web-view-poll"><div class="gmail-columns-section"><div class="gmail-columns-row"><div class="gmail-poll-card"><div class="gmail-options"><div><p style="float:right;margin-top:23px;font-weight:600;font-size:0.875rem;display:block;color:var(--cdl-secondary)"></p></div></div></div></div></div></div><p></p><p><strong>Beijing stops playing defense</strong></p><p>The threat is aimed largely at the <a href="https://thecradle.co/articles/new-currency-of-power-how-the-global-south-is-dismantling-dollar-supremacy">alternative systems</a>
China has used to circumvent US sanctions on Russia, Venezuela, and
Iran. Since Iran came under heavy sanctions, Beijing has been developing
modes of trade that bypass the sanctions laws of the western financial
system.</p><p>In fact, China does not legally recognize unilateral
sanctions on countries, having passed the Anti-Foreign Sanctions Law
(AFSL) in June 2021. </p><p>Chinese individuals and businesses can still
be cut out of the western financial system by US measures. Beijing
cannot prevent Washington from weaponizing access to US-controlled
networks. But the Chinese state does not recognize those measures as
lawful and refuses to enforce them.</p><p>In other words, if Chinese
institutions find other means of trading with sanctioned entities,
including sanctioned countries, the Chinese government will not treat
that conduct as a violation.</p><p>Decrees 834 and 835 now deepen that posture. China has moved from ad hoc countermeasures to a <a href="https://www.morganlewis.com/pubs/2026/04/china-issues-new-regulations-on-countering-foreign-extraterritorial-jurisdiction-what-mncs-need-to-know">comprehensive, multiagency countersanctions legal framework</a>
capable of addressing commercial conduct, regulatory compliance
choices, and cross-border legal conflicts. US sanctions threaten to cut
targeted individuals, entities, and states from global trade. But in a
world increasingly dependent on Chinese trade, Beijing increasingly
holds cards Washington cannot easily match.</p><p>Because China rejects
the legitimacy of unilateral sanctions \u2013 overwhelmingly wielded by the
US \u2013 it has now created a legal precedent to respond with
counter-sanctions. Crucially, this framework now reaches Hong Kong, long
treated as too sensitive to fold fully into Beijing\u2019s countersanctions
system because of its role as an international legal and financial hub.</p><p>The
decrees give Beijing a weapon it lacked when the AFSL was passed in
2021: a legal shield for Chinese banks, insurers, ports, shippers, and
contractors caught between US pressure and Chinese national security
law. Multinationals now face the dilemma Washington has long imposed on
others. Obey US sanctions and risk Chinese penalties, or comply with
Chinese law and face American retaliation.</p><p>That hesitation has
become harder to sustain. The war on Iran, the US threat of secondary
sanctions, and the pressure campaign over CK Hutchison\u2019s Panama ports
have turned Hong Kong from a financial exception into a national
security question for Beijing.</p><p><strong>Iran oil builds the parallel economy</strong></p><p>Out
of this pressure has grown a complex network engineered by China and
Iran to settle oil payments outside the international banking system. It
is, in effect, an oil-for-infrastructure arrangement that blends
economic barter with strategic investment, similar to China\u2019s
arrangement with Venezuela under President Nicolas Maduro. </p><p>In
return for Iranian oil, Chinese state-owned companies support Iran\u2019s
transport, energy, and infrastructure sectors. Intelligence estimates
suggest roughly $8.4 billion moved through this channel in a single
year.</p><p>This alternative network rests on two core pillars: Sinosure and Chuxin. </p><p>Sinosure
is a state-owned export credit insurance agency that supports Chinese
exporters and overseas investment through risk coverage and financing
solutions. </p><p>Chuxin is a semi-covert financial entity that manages
money flows between Chinese contractors and Iranian oil entities while
bypassing the western-monitored banking system.</p><p>Much of this
Chinese financing takes the form of export credit. Analysts describe the
arrangement as a \u201csanctions-parallel economy\u201d combining insurance
tools, project finance, and barter-style settlement. It allows Iranian
oil to keep moving while turning western pressure into a pipeline for
Chinese-built infrastructure.</p><img style="aspect-ratio: 800 / 767; margin-right: 25px;" src="https://thecradle-main.oss-eu-central-1.aliyuncs.com/public/articles_media/29e2c568-4fa6-11f1-ba54-00163e02c055.png" width="524" height="502"><p>Iranian
oil reaches China via convoluted maritime routes involving shadowy
ship-to-ship transfers and then blends the sanctioned oil with other
Asian crude grades, making source tracing difficult. In return, China
pays by financing long-term construction projects inside Iran, including
airports, refineries, and highways \u2013 effectively converting
infrastructure into indirect payment for oil shipments.</p><p>This
cooperation between China and Iran reflects a quiet economic alliance
aimed at reshaping the global financial system toward reduced western
dependence \u2013 generating a parallel economic order based on goods,
projects, and alternative financing instead of hard currency controlled
by Washington. </p><p>Despite the US Treasury\u2019s awareness of this
mechanism, it has so far imposed only limited sanctions on smaller
Chinese entities. Major players such as Sinosure and Chuxin remain
untouched \u2013 largely due to their deep entanglement in the global
economy. It is the same reason why the US has not sanctioned China as a
whole; since China is so crucial to world trade, it would be equivalent
to sanctioning most of the world. </p><p>China\u2019s trade weight is
becoming an umbrella for states subjected to weaponized US sanctions,
which are no less destructive than direct acts of war. If this approach
continues to expand, it could become a cornerstone of the global shift
away from dollar-centered finance toward multi-track economic systems.</p><p><strong>Hong Kong and the shadow-bank corridor</strong></p><p>Another component of this complex alternative system by the Chinese consists of shadow banking. A <a href="https://www.wsj.com/world/china/how-hong-kong-helps-the-flow-of-irans-hidden-billions-cfffb913?msockid=1e66efbf72236fb12e51f952738f6e4e">Treasury Department analysis</a>
found that entities in Hong Kong \u2013 most of them likely shell companies \u2013
engaged in $4.8 billion in financial activity potentially related to
Iranian shadow banking in 2024. </p><p>Last year, the US imposed
sanctions on five more companies in Hong Kong and one in the mainland
Chinese city of Shenzhen for allegedly acquiring western parts and tools
for Iranian drones. </p><p>Several top Hong Kong officials have also
been hit with US sanctions. Hong Kong Chief Executive John Lee, his
predecessor Carrie Lam, and senior police and security officials were
targeted because Washington objected to how they handled the 2019 Hong
Kong protests.</p><p>As of November 2025, the US had imposed Iran-related sanctions <a href="https://www.wsj.com/world/china/how-hong-kong-helps-the-flow-of-irans-hidden-billions-cfffb913?msockid=1e66efbf72236fb12e51f952738f6e4e">on at least 366 entities</a>
in mainland China or Hong Kong, according to the US\u2013China Economic and
Security Review Commission. Some of those targets were accused of
helping to move Iranian oil, using front companies in Dubai and Hong
Kong.</p><p>The system reportedly works like this. Money from oil sales
moves through a web of front companies, often routed through Chinese
financial institutions, to Hong Kong, before it is then converted into
other currencies. </p><p>Much of the cash from oil sales to China
remains in bank accounts abroad, in financial hubs such as Hong Kong,
Dubai, and Singapore. Iranian importers and exporters then trade foreign
currency among their various front companies on ledgers maintained in
Iran. </p><p>These payments are largely routed through smaller Chinese
banks that have limited global operations and less to lose if they are
sanctioned. Front companies established by Iran in Hong Kong and
elsewhere help manage the proceeds.</p><p>One such bank, <a href="https://www.wsj.com/world/middle-east/how-china-helped-iran-cushion-the-blow-of-sanctions-and-fund-its-war-machine-6fa2847d?mod=article_inline">US officials say</a>,
is the Bank of Kunlun. In 2012, Washington cut Kunlun off from the US
financial system for allegedly providing hundreds of millions of dollars
in financial services to Iranian banks, including moving money and
paying letters of credit. That punishment only solidified Kunlun as a
preferred channel for facilitating trade with Iran in China\u2019s currency.</p><p>The bank grew rapidly. A \u201csignificant portion\u201d of Iran\u2019s oil revenue was deposited at Kunlun as of 2022, <a href="https://www.wsj.com/world/middle-east/how-china-helped-iran-cushion-the-blow-of-sanctions-and-fund-its-war-machine-6fa2847d?mod=article_inline">according to the US Treasury</a>.
According to indictments filed in US federal courts, front companies in
Hong Kong and elsewhere have been used to convert Chinese yuan into
dollars, euros, and other foreign currencies that Iran needs.</p><p><strong>Shadow fleets and maritime chokepoints</strong></p><p>The
shadow fleet is the transport arm of this system. These vessels change
names and flags, report false GPS signals, go dark, report as different
ships during their journeys, and even duplicate transmissions to create
ghost ships.</p><p>There are now more than 1,470 tankers classed as
being part of the shadow or dark fleet, according to the ship monitoring
website TankerTrackers.com, which represents approximately 16.3\u201319.6
percent of tankers currently transporting oil, oil products, and
chemicals around the world.</p><p>Russia\u2019s shadow fleet has also been trading oil in either rubles or Chinese yuan, further undermining the petrodollar.</p><p>These
shadow tankers often use a \u201cflag of convenience\u201d provided by smaller,
non-western nations such as Gabon, Comoros, or Cameroon. Flag states\u2019
ship registries are responsible for recording ship ownership and loans
secured against vessels, as well as investigating incidents. In return,
the shipowners pay fees. Some small states outsource their shipping
registry to third parties.</p><p>The Jun Tong oil tanker, known as the
Fair Seas until January 2024, and the Tai Shan until August, appear to
be part of China\u2019s shadow fleet. It <a href="https://www.wsj.com/business/logistics/a-shadow-fleet-smuggles-illicit-oil-across-the-high-seas-this-is-how-it-works-eb8c9954?mod=article_inline">has sailed under</a> the Cameroon flag, the flag of Malta, the flag of the Marshall Islands, and the flag of Panama.</p><p>Shadow
fleet vessels typically change ownership multiple times, reportedly
relying on shell companies in places with loose registration
regulations, such as Dubai, Hong Kong, and the Marshall Islands, to
disguise the identities of their ultimate owners.</p><p><strong>Panama becomes the pressure point</strong></p><img style="aspect-ratio: 1080 / 727; margin-right: 25px;" src="https://thecradle-main.oss-eu-central-1.aliyuncs.com/public/articles_media/89e4e2c0-4fab-11f1-b863-00163e02c055.png" width="524" height="353"><p>In fact, the flag of Panama appears to be the second most prevalently used flag amongst shadow vessels. </p><p>That
is a major clue to the real story behind US pressure on Panama to oust
Hong Kong-based CK Hutchison from its two ports in the Panama Canal.</p><p>US
sanctions are not working as intended. Washington has increasingly
resorted to enforcing unilateral sanctions through military force, as
seen in recent months when US forces seized shadow tankers such as the
Bella-1.</p><p>If the US controls major maritime chokepoints such as the
Panama Canal, it can enforce unilateral sanctions by force while
reserving the right to charge selected vessels. Trump has already
announced plans to impose <a href="https://www.nbcnewyork.com/news/business/money-report/trump-is-targeting-china-made-containerships-in-new-flank-of-global-economic-war-on-the-oceans/6181349/">\u201cport fees\u201d on Chinese-built ships</a> passing through ports under US jurisdiction. These fees could reach $1.5 million per vessel.</p><p>This
is the deeper logic behind BlackRock and MSC\u2019s attempt to purchase 43
of CK Hutchison\u2019s 53 ports internationally \u2013 and why China blocked the
sale. BlackRock was brought in under former US president Joe Biden's
administration to work for the US government and oversee the Build Back
Better World (<a href="https://thecradle.co/articles/dead-on-arrival-the-wests-b3w-initiative-to-rival-chinas-bri">B3W</a>) partnership, <a href="https://bidenwhitehouse.archives.gov/briefing-room/statements-releases/2024/06/13/fact-sheet-partnership-for-global-infrastructure-and-investment-at-the-g7-summit-2/">now called Global Infrastructure Partners (GIP)</a>.</p><p>BlackRock, the largest asset manager in the world, and its infrastructure acquisitions are directly tied to the <a href="https://bidenwhitehouse.archives.gov/briefing-room/statements-releases/2024/06/13/fact-sheet-partnership-for-global-infrastructure-and-investment-at-the-g7-summit-2/">G7 agreement with GIP</a>. This relationship has continued under the Trump administration.</p><p>The
GIP was designed to undermine China\u2019s Belt and Road Initiative (BRI),
which is building critical infrastructure across the world. GIP, <a href="https://www.blackrock.com/corporate/newsroom/press-releases/article/corporate-one/press-releases/blackRock-agrees-to-acquire-global-infrastructure-partners">officially owned by BlackRock</a>, is now attempting to purchase or find ways to seize strategic infrastructure, as seen in Panama.</p><p>Panama,
connected to Hong Kong through both CK Hutchison and possibly the
shadow fleet system, has faced intense pressure this year to seize the
ports under vague \u201cconstitutional\u201d grounds that have not been clearly
specified. CK Hutchison is seeking arbitration.</p><p>This is where
China\u2019s April decrees matter most. In the Panama case, the government\u2019s
claim that the seizure rests on constitutional grounds makes the
decision harder for Beijing to contest directly. But Panama now faces
potential economic consequences under Chinese law. Beijing reserves the
right to respond with sanctions of its own. Panama would not be the
first country to unlawfully seize major Chinese assets.</p><p>The
warning is also aimed squarely at Washington. China is preparing to
respond if the US pushes further after kidnapping Maduro from Venezuela,
cutting off Cuba\u2019s access to oil, freezing Iraqi oil revenue, and
waging an illegitimate war on Iran in the span of only a few months.</p><p>If Washington escalates its economic carpet bombing, Beijing now has a legal arsenal with which to answer.</p><p>Alongside
its rapidly growing Cross-Border Interbank Payment System (CIPS), which
can operate outside SWIFT, China is moving toward an alternative
financial system in which states can trade with whomever they choose,
free from the western financial diktat that has long functioned as the
monetary architecture of imperialism. </p><p>The war on Iran has dragged
a parallel financial system into view, exposing an architecture already
built through years of sanctions pressure and now pushed further into
the open by every new US threat.</p></span></div></div></div></div>
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