The United States has threatened to impose sanctions on Chinese banks if they are found to be involved in handling money from Iran's oil trade payments, marking a sharp escalation in efforts to tighten financial pressure on Tehran.

The warning came after the US military began blocking ships linked to Iranian trade from docking at the country's ports on Monday, in an operation that was initially perceived as a broader blockade of the Strait of Hormuz. 

Besides, US President Donald Trump has also stepped up diplomatic pressure on Beijing to ensure China does not supply Iran with weapons. He said on social media that Chinese President Xi Jinping agreed not to send weapons to Iran. 

Taken together, Washington's financial sanctions threats, maritime restrictions and political pressure are expected to significantly curb Iran's ability to access Chinese financing and supplies. Trump said it's likely that the US and Iran would make a long-term ceasefire deal next week. 

On Wednesday, US Treasury Secretary Scott Bessent said in a media briefing that the US has warned a number of banks in various jurisdictions of the potential imposition of secondary sanctions for handling transactions related to Iran.

"Two Chinese banks received letters from the US Treasury," he said. "I'm not going to identify the banks, but we told them if we can prove there is Iranian money flowing through your accounts, then we are willing to put on secondary sanctions."

US media reported that the letters cited Treasury Department evidence that Iran routed roughly US$9 billion in 2024 through US correspondent accounts using networks of front companies, with activity concentrated in Hong Kong, Oman and the United Arab Emirates (UAE).

"I am writing to alert you that Treasury believes that a portion of these transactions, as well as additional transactions after 2024, were processed from banks you supervise through their US correspondents on behalf of direct customers linked to Iran," according to the letter. 

The Treasury Department urged the jurisdictions' monetary regulators to work with banks under their supervision to identify and halt any Iran-related financial activity, including transactions routed through front companies or other evasive structures, citing significant illicit finance risks.

It added that the information had also been shared with US banks providing correspondent services so they could apply enhanced scrutiny to such transactions.

New anti-sanctions rules

In June 2021, China passed the Anti-Foreign Sanctions Law to bar individuals and companies from complying with US and other foreign sanctions within its jurisdiction. At the time, Chinese media said the framework could be extended to Hong Kong by adding it to the Basic Law's Annex III.

However, Beijing did not implement it as some Hong Kong banks said the law would place them in a difficult position between Chinese and US regulatory demands.