• Treasury Secretary Scott Bessent has held private discussions with China regarding Iran, signaling a shift toward confidential diplomacy to enforce sanctions.
  • The U.S. is pressuring China to curb its purchases of Iranian oil, though major Chinese banks have so far avoided direct sanctions.
  • The outcome of these talks could determine the effectiveness of Washington's "maximum economic pressure" campaign.

Diplomatic Backchannel

Treasury Secretary Scott Bessent's disclosure that he has "had private discussions with China" over Iran marks a significant shift in the Trump administration's approach to enforcing sanctions. By moving sensitive negotiations behind closed doors, Washington appears to be seeking a compromise with Beijing on Iranian oil purchases without triggering a broader trade confrontation.

"We are in constant contact with our Chinese counterparts," Bessent said at the G20 finance meetings in Asheville, North Carolina, according to people familiar with the matter. "All options are on the table," he added, hinting at potential actions against Chinese entities that facilitate Iranian oil exports.

The Enforcement Dilemma

China is Iran's most consequential oil customer, making its cooperation essential for the success of the renewed sanctions campaign. However, targeting major Chinese banks could risk financial market stress and provoke retaliation. So far, the Treasury has focused on smaller intermediaries, such as a proposed action against the UAE branches of Egypt's Banque Misr, which could be severed from the U.S. financial system over Iran-linked activity.

The delicate balance is not lost on analysts. "The U.S. is walking a tightrope," said one former Treasury official, speaking anonymously. "They need China to reduce Iranian oil purchases, but they can't afford to upend the global financial system."

Market Implications

The unresolved conflict has kept the Strait of Hormuz closed, constraining energy flows and driving oil prices to three-week highs. Bessent has framed reopening the waterway as a shared interest between Washington and Beijing, given that China imports about half of its energy from the Gulf region. Higher oil prices, freight costs, and insurance premiums are already feeding into inflation worries globally, complicating central bank policy.

China's Stance

China publicly rejects sanctions as a solution, calling instead for diplomatic engagement. Yet privately, Beijing faces its own energy security concerns and may be open to targeted measures against specific shipping or financial networks involved in sanctioned trade. The private channel allows both sides to explore these options without hardening public positions.

"The private talks are a sign of pragmatism," noted a senior researcher at a Beijing think tank, who asked not to be named. "Both sides know a trade war over Iran could be mutually destructive."

What's Next

The G20 meetings concluded without a public breakthrough, but officials hint at continued engagement. Treasury may announce further sanctions against smaller banks to demonstrate enforcement, while China may quietly push refiners to reduce imports. The risk of escalation remains if Washington targets major Chinese financial institutions.

Oil markets and investors will watch for any signals of progress or renewed conflict. A negotiated reopening of the Strait of Hormuz would ease price pressures faster than sanctions alone, but political conditions for such a deal remain elusive.

Clarification: This article has been updated to reflect Bessent's statement that discussions were private and to clarify the focus on intermediary banks.