Washington may have discovered the limits of economic warfare. In the Bishkek economic summit, from 31st August to 1st September, China, Russia, India and Iran gathered under the banner of the Shanghai Cooperation Organisation (SCO) while the United States continued its campaign to squeeze Tehran. The symbolism was difficult to miss. The more Washington reaches for sanctions, the more determined its rivals become to construct financial channels beyond American control.
The proposed Shanghai Cooperation Organisation Development Bank is still some distance from becoming a functioning institution. The Bishkek summit advanced negotiations rather than signing a founding agreement, with questions over capital, governance and location still unresolved. Yet Vladimir Putin’s demand that such a bank should enjoy maximum independence from financial systems controlled by states that weaponize economic instruments, was an unmistakable political message.
For China, this is about far more than Iran. Beijing has become the principal outlet for Iranian oil. The U.S. Treasury itself says China purchases approximately 90 percent of Iran’s oil exports, with independent Chinese refineries accounting for much of that trade. China possesses an enormous domestic market, its own currency, extensive state controlled financial institutions and a large ecosystem of independent refiners and trading companies. Much of the Iranian trade can therefore be kept away from the dollar-based financial system. The United States can blacklist companies and vessels, but another company can emerge, another intermediary can be found, and another payment mechanism can be constructed.
This is the sanctions equivalent of trying to empty the ocean with a bucket. The United States still possesses formidable financial power. Access to the dollar, American banks and Western insurance remains enormously valuable. For companies with substantial exposure to Western markets, secondary sanctions can be devastating. Yet that leverage weakens when the target is a Chinese enterprise whose principal business is conducted inside China and whose Iranian transactions are settled through alternative channels.
Beijing has learned this lesson through years of confrontation with Washington. It has also learned something more important. Sanctions rarely remain confined to their original target. Once the United States establishes the principle that Washington can dictate whether a Chinese company trades with Iran, Russia or another country, the question becomes whether Beijing is prepared to accept American jurisdiction over China's external economic relations.
The answer is increasingly clear. China will resist. That does not mean China is preparing to become Iran's military ally. Far from it. Beijing has powerful reasons to keep the relationship carefully calibrated. China needs stable relations with the Gulf monarchies, wants access to Middle Eastern energy and has no interest in inheriting Iran's regional conflicts. Nor does Beijing want a direct confrontation with Washington. Indeed, the Trump Xi summit in May produced an explicit commitment to build what both sides described as a constructive relationship of strategic stability. The Chinese formulation emphasized cooperation, controlled competition and manageable differences.
That makes China's position on Iran especially revealing. Beijing is trying to demonstrate that cooperation with Washington has limits. China can remain neutral in the military conflict while refusing to surrender its economic interests. It can decline to arm Iran while continuing to purchase Iranian oil. It can condemn unilateral sanctions while simultaneously seeking better relations with Washington. This is classic Chinese strategic calculation. The danger for America is that its sanctions policy is accelerating precisely the financial decoupling it has long sought to prevent. Every time Washington threatens a Chinese bank with exclusion from the American financial system, Chinese policymakers have another reason to develop alternative payment mechanisms. Every time a Chinese company is sanctioned for buying Iranian oil, Beijing has another incentive to reduce dependence on the dollar.
The proposed SCO Development Bank therefore deserves attention. It may take years to become operational, and internal rivalries could prevent it from becoming an effective financial institution. The SCO itself contains competing interests, including the difficult relationship between China and India and the divergent ambitions of its members. Yet institutions matter even when they begin modestly. The BRICS (Brazil, Russia, India & China) grouping has already demonstrated the political attraction of alternative financial arrangements. The SCO now appears determined to explore its own mechanisms. The Bishkek summit also endorsed greater use of national currencies in mutual settlements. Russia says more than 98 percent of its settlements with SCO partners are already conducted in national currencies.
Washington should therefore be careful about declaring victory every time it imposes another sanctions package. The real measure of sanctions’ success is whether they change behaviour. If Iran continues selling oil, China continues buying it, and alternative financial mechanisms become increasingly sophisticated, then Washington may be winning individual battles while losing the wider strategic contest.
There is an even greater danger. A prolonged American campaign against Chinese companies involved in Iranian trade could transform an argument over Iran into another front in the U.S./China economic confrontation. That would be profoundly damaging to both economies and to global markets. China has little interest in rescuing Iran at any price. But it has an enormous interest in ensuring that Washington cannot decide which countries China is permitted to trade with. That distinction is fundamental. Iran may therefore be becoming the laboratory in which a new international financial order is being tested. The experiment is still incomplete. The SCO bank remains embryonic. Alternative payment systems remain fragmented. The dollar remains overwhelmingly powerful. Yet the direction of travel is unmistakable.
If Washington continues treating sanctions as a substitute for diplomacy, it may eventually discover that the greatest achievement of its economic pressure campaign was to teach its competitors how to live without American permission. China is already learning the lesson. And once Beijing decides that economic sovereignty requires financial independence, Washington will find that sanctioning Iran is the easy part. The difficult part will be persuading China to return to the system that sanctions are helping it escape.
