The “economic onslaught” on Iran’s financial connections around the world that U.S. Treasury Secretary Scott Bessent declared earlier this week may have one major caveat: China.

Beijing is Iran’s biggest trading partner and its leading oil buyer.

While the U.S. is trying to isolate the Islamic Republic from its remaining economic partners, U.S. President Donald Trump also is preparing to host Chinese leader Xi Jinping next month to maintain a fragile trade truce.

Absent from Bessent’s remarks this week were specifics about how the Trump administration would target China, casting doubts on how effective the new campaign would be when the U.S. must balance putting maximum pressure on Iran and avoiding higher tensions with China that could be costly to the American economy.

“The announcement yesterday was very careful in my view to avoid specifics (against China), which could have led to a disruption in the summit,” Edgard Kagan, senior adviser and Freeman Chair in China studies at the Center for Strategic and International Studies, said Tuesday.

“For Xi, a state visit to Washington is a big deal; and for Trump, hosting it is a big deal.”

That means both Washington and Beijing will have a dance to do, said Kagan, who served as U.S. ambassador to Malaysia from December 2023 until this February.

“I think the real question is, is there room to push (the Chinese) to reduce what they’re doing with Iran, to put more pressure on the Iranian regime in a way that doesn’t lead them to say, ‘This is unreasonable, and we’re not going to comply,’” he said.

In response to “Operation Economic Outcast,” which Bessent announced Monday, Beijing said its cooperation with Iran has always been “within the framework of international law.” China receives more than 80% of Iranian oil shipments but usually through indirect channels.

Lin Jian, a spokesperson for China’s Foreign Ministry, said China-Iran cooperation “should not be disrupted or undermined.”

“China is closely monitoring relevant developments and will take all necessary measures to resolutely safeguard its own rights and interests,” Lin said. He repeated China’s opposition to “illegal unilateral sanctions.”

Kagan described Beijing’s remarks as “a holding response” and said Beijing will try to do the least to comply without openly confronting the U.S.

“They’ve tended to be careful, not crossing explicit red lines, but they haven’t addressed the spirit of what the U.S. has sought,” Kagan said, pointing to practices such as ship-to-ship oil transfers that obscure the origin of Iranian crude oil to evade American sanctions.

Sun Yun, director of the China program at the Stimson Center, a Washington think tank, said China will not go along with the new campaign if the U.S. goal is to destroy the Iranian economy and seek the government’s collapse.

But “if the goal is to exert enough pressure for Iran to make concessions on the Strait of Hormuz and potentially ending the conflict, I think China can and will demonstrate its cooperation without having to completely sever ties with Iran,” Sun said.

“China only needs to do enough to demonstrate it is cooperating, such as cut back on its oil imports from Iran.”

‘Neither side wishes major escalation’

With a planned summit between Trump and Xi weeks away, “neither side wishes to have a major escalation bilaterally at this point,” she said.

“China needs to give the U.S. something, and the U.S. needs to understand and accept that it is not going to be everything the U.S. asks for.”

So far, the Trump administration has refrained from imposing sanctions on major Chinese businesses or banks connected to the U.S. financial system and thus vulnerable to American penalties.

The Treasury Department said Monday that it was penalizing nearly 60 Iran-linked entities, accusing them of involvement in Iran’s nuclear and missile programs, cyber activities and oil shipments.

It targeted some entities and individuals based in mainland China and Hong Kong for supporting Iran’s missile and nuclear programs. It sanctioned a China-owned crude oil tanker for transporting millions of barrels of Iranian oil to China this year as well as a Hong Kong-based business for its role in the shadow fleet that ships out Iranian oil.

With Xi’s visit coming up, Trump may not act tough on China now, said Ali Wyne, senior research and advocacy adviser on U.S.-China relations at the International Crisis Group.

“Given how keen Trump has been to maintain both a trade truce between the United States and China and his personal rapport with Xi, he seems unlikely to do a volte-face just a month before Xi’s state visit and adopt a highly confrontational posture,” he said.

Plus, Xi’s visit to the U.S. could pave the way for Trump to return to China in November for the leaders summit of the Asia-Pacific Economic Cooperation (APEC) grouping.

In his second term, Trump has been less hawkish on China than in his first presidency and frequently touts his good relationship with Xi following a major trade war last year that featured back-and-forth escalating tariffs.

The U.S. business community also welcomes Xi’s visit, saying it’s a good sign if the two leaders meet in person, even when any substantial deals may be elusive.

“Beijing is betting that Washington will be reluctant to jeopardize the current leader-level dynamic by targeting major Chinese entities before the summit,” said Craig Singleton, senior director for China at the Foundation for Defense of Democracies, a hawkish Washington think tank.

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The cost of insuring exposure to Türkiye’s sovereign debt fell Wednesday to its lowest level in about six-and-a-half months, as expectations of easing geopolitical risks in the Middle East and steps by the central bank on liquidity management supported investor sentiment.

Türkiye’s five-year credit default swaps – a form of insurance for bondholders – fell to 217 basis points, a level not seen since Feb. 18, days before the U.S. and Israel launched the war against Iran. The premium had soared to above 320 basis points around early April.

Emerging-market risk premiums have generally declined as signs of a possible easing in tensions between the U.S. and Iran raised hopes for renewed diplomatic talks and a more lasting resolution to the conflict.

Reports that the U.S. government is preparing to return diplomats to some embassies evacuated during the war, along with comments from mediating countries that negotiations between the sides could resume, helped improve sentiment.

The developments also eased concerns over energy supplies, sending oil prices sharply lower. Brent crude futures for October delivery fell 3.9% to $88.60 a barrel, while the U.S. 10-year Treasury yield declined about seven basis points to 4.63%.

CBRT liquidity move supports risk sentiment

Domestic developments also contributed to the decline in Türkiye’s risk premium.

The Central Bank of the Republic of Türkiye (CBRT) Monday resumed one-week repo auctions, which had been suspended since March due to heightened market volatility following the outbreak of the Iran war.

During the suspension, banks’ liquidity needs were largely met through the CBRT’s overnight lending facility at a 40% rate.

The resumption of weekly repo operations is viewed as a signal that the central bank was moving back toward its normal operational liquidity framework.

The move strengthened expectations that banks’ funding costs could move closer to the 37% policy rate and that market interest rates could decline.

Türkiye’s two-year bond yield also fell below 40% for the first time since July 2, while longer-dated yields edged down more modestly.

Several factors behind CDS decline

Spinn Consulting founding partner and economist Özlem Derici Şengül said several factors were behind the decline in Türkiye’s CDS, with the biggest immediate impact coming from lower bond yields.

She said inflation expectations and other macroeconomic risks had not yet improved significantly, making the decline in bond yields a more important driver of the fall in the country risk premium.

According to Şengül, the resumption of weekly repo auctions could also be considered one of the factors, but she noted this is yet to be reflected in actual funding costs.

“The factors coming to the fore are global conditions, the decline in oil prices and the easing of the war to some extent,” she said, adding that expectations of a possible CBRT rate cut and stronger reserves were also supporting the decline in CDS.

She cautioned that risks remained, including the possibility that U.S. sanctions on Iran could affect Türkiye, particularly given the country’s imports of Iranian natural gas.

A renewed escalation in the conflict could push oil prices higher again, while deterioration in inflation expectations or a slowdown in reserve accumulation could also limit the decline in Türkiye’s risk premium.

‘Critical signal’

Seda Yalçınkaya Özer, head of strategy and investment advisory at Yatırım Finansman, said Türkiye’s CDS move should be viewed against both global and domestic developments.

She said expectations of diplomacy involving Iran, Pakistan and Oman, along with the U.S. avoiding direct sanctions on Chinese banks, had reduced the risk premium embedded in oil prices.

“There is a general narrowing in emerging-market risk premiums globally,” Özer said, noting that the easing of tensions in the Middle East and lower commodity prices had boosted risk appetite across emerging markets rather than Türkiye alone.

She cautioned that a potential Iranian retaliation could quickly reverse current market pricing.

For Türkiye, however, oil prices below $90 a barrel are clearly positive for the current account balance, fuel prices, inflation and the CBRT’s room for monetary policy, she said.

Özer also described the CBRT’s return to weekly repo auctions after roughly six months as a “critical signal.”

Moving funding costs from around 40% overnight toward the 37% policy rate could be interpreted as a concrete step toward easing financial conditions and has brought the possibility of a rate cut in September back into focus, she said.

“The market is pricing this as confirmation that the normalization process is continuing, alongside a gradual slowdown in inflation.”

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Six months into the U.S.-Iran war, Qatar is among the conflict’s biggest economic casualties, with its liquefied natural gas (LNG) exports slashed by 96%, data shows.

Saudi ⁠Arabia, the United Arab Emirates (UAE), Iraq and Kuwait have seen their oil exports hit, but by nowhere near as much.

Qatar has lost $24 billion in gas sales, which is about five months’ worth of income for the country based on 2025 data, according to calculations reported by Reuters

While neighboring Gulf exporters have managed to sneak oil secretly out of the Strait of Hormuz, Qatar has exported just 18 LNG cargoes, ⁠down from 509 in the same period last year, according to data intelligence firm ICIS. Two Qatari tankers have been attacked.

Before the ⁠war, Qatar supplied about one-fifth of the world’s daily LNG. Exports from the U.S. have offset some of that lost supply.

Still, European gas ⁠storage has fallen to a historic low for the time of year, exposing the continent to possible gas price spikes in ⁠the event of a cold winter this year.

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Türkiye’s state-owned Halkbank raised an additional $1.1 billion from international markets following the dismissal of a U.S. criminal case against the lender, the bank announced Tuesday.

In a statement submitted to Türkiye’s Public Disclosure Platform (KAP), Halkbank said the conclusion of the case in its favor had improved its access to overseas funding.

The bank noted that it had raised $3.9 billion in external funding before the case was resolved through instruments, including Additional Tier 1 (AT1) subordinated debt and bilateral loan agreements.

The additional financing brought the amount of external funding raised before and after the dismissal to $5 billion.

Halkbank also reported a rapid increase in the number of counterparties following the conclusion of the legal proceedings.

It said it established a $5 billion Global Medium-Term Note (GMTN) program on July 17 after receiving approval from its board of directors.

The programs allow financial institutions to issue multiple debt instruments in international markets under a single framework, providing flexibility over maturities, currencies and issuance timing.

Halkbank said feedback gathered during a non-deal roadshow with fixed-income investors indicated strong interest in its planned issuances.

The lender added that it would continue to strengthen its presence in international markets and assess alternative funding channels to support a sustainable funding structure.

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Fifty-four provinces in Türkiye recorded year-over-year increases in exports in the first seven months of the year, while 22 surpassed $1 billion (TL 48.10 billion) in shipments, the Trade Ministry said Tuesday.

Türkiye’s total exports rose 2.9% on an annual basis to $25.6 billion in what marked the highest-ever July shipments. In the January-July period, exports grew 3.4% to $161.6 billion.

Istanbul remained the country’s largest exporting province last month, with exports of about $5.9 billion, although its shipments fell 0.6% from a year earlier, the data showed.

The northwestern Kocaeli ranked second with almost $3.4 billion, down 1%, followed by the western Izmir with nearly $2.1 billion, up 6.9%.

Precious and semi-precious stones were Istanbul’s largest export category, generating $968.3 million. Knitted clothing and accessories followed with $517.2 million, while boilers and machinery accounted for $498 million.

Istanbul’s largest export market was the U.S., with shipments worth $406.7 million, followed by Germany at $352.6 million and the United Arab Emirates (UAE) at $344 million.

In Kocaeli, motor vehicles were the leading export category at $1.2 billion, followed by mineral fuels and oils at $335.9 million and electrical machinery and equipment at $334.8 million.

Germany was Kocaeli’s largest export market at $339.1 million, followed by the U.K. with $334.1 million and the U.S. with $169.6 million.

Mineral fuels and oils led Izmir’s exports at $351.3 million, followed by motor vehicles at $233.8 million and boilers and machinery at $212.5 million.

Germany was Izmir’s largest export destination at $191.9 million, followed by the U.S. at $128.5 million and Niger at $119.7 million.

Southern Mersin posted the largest increase in export value among provinces last month, with exports rising by $194 million from a year earlier.

Izmir ranked second with a $135 million increase, followed by southern Antalya with a $129 million rise.

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Canada announced retaliatory tariffs of 15% to 50% on a range of U.S. goods Tuesday, escalating a trade dispute between the longtime North American allies.

Ottawa’s retaliation will take effect Sept. 8, a timeframe earlier outlined by Prime Minister Mark Carney after U.S. President Donald Trump’s 50% duties came into place Saturday.

Canadian officials said Tuesday that the retaliatory tariffs will match U.S. levels, with impacts on industries including steel, dairy and electronics.

Canada’s government also announced a $5.4 billion (CA$7.5 billion) aid package for impacted firms and workers.

“This is an unprecedented challenge imposed on Canada. But Canada will meet the moment,” Finance Minister Francois-Philippe Champagne said.

“I think what Canadians can see this morning is that we stand united,” he added. “Canada must respond and today we are, in a proportionate, targeted and strategic way.”

Industry Minister Melanie Joly echoed Champagne’s call for Canadians to support local businesses, while vowing to work with new allies and trading partners.

“We cannot wait for Washington to decide our future,” she said.

The steep U.S. tariffs hit about $20 billion in Canadian goods – about 5.5% of its exports to the United States – after trade negotiations collapsed at the eleventh hour.

Under Canada’s planned response, US steel and aluminum products previously subject to a 24% duty will soon face 50% tariffs.

Goods facing 25% tariffs will include appliances, dairy products like cheese, as well as certain steel and aluminum derivative products.

A small category will see a 15% duty, including electric equipment and tools.

Overall, these form about 7.3% of Canada’s imports from the United States.

But analysts warn of tit-for-tat escalation.

Already on Monday, Trump pledged to double tariffs on Canadian autos starting next year, up to 50% from the current 25% for non-U.S. content.

Ontario Premier Doug Ford criticized Trump’s threat on autos, saying he could “kiss my ass” and threatening an electricity export surcharge.

Trump lashed out at Ford, warning of “far worse” consequences. He also referred to Carney as a “governor,” re-upping his inflammatory push for Canada to become the 51st U.S. state.

Highlighting the animosity, Trump said Tuesday he was considering renaming Lake Ontario as “Lake America,” as he did last year with the Gulf of Mexico, which he ordered to be called the “Gulf of America.”

Trump’s latest tariffs do not exempt products covered by the U.S.-Mexico-Canada free trade agreement (USMCA). They raise the U.S. effective tariff rate on Canadian exports to 6.9% from 5.1%, Oxford Economics estimates.

Tariffs on plastics, electrical machinery, and wood and paper products contribute most to the increase.

“Manufacturers in Quebec, New Brunswick, and Ontario will be affected the most,” Oxford Economics said.

Over the weekend, Carney said U.S. negotiators sought restrictions on Canadian trade deals with other countries at the last minute.

U.S. officials made unacceptable “threats” to the French language and “Quebec culture” too, he added, referring to eastern Canada’s French-speaking province.

Trump pushed back Tuesday, saying on Truth Social that he would “never interfere with Canadians speaking French” and accusing Carney of lying to “gain political support.”

The United States is Canada’s biggest trading partner, with Canadian exports to its neighbor representing 70% of its overall total.

Canada is the second biggest U.S. trading partner in goods this year, behind Mexico.

Polling released Sunday by the Angus Reid Institute showed Canadians broadly support Carney’s move to walk away from talks, but some fear economic repercussions.

The White House had alleged “discriminatory treatment” by Canada against U.S. alcohol, automobile and dairy products in rolling out new tariffs.

Trump delayed their implementation, but both sides failed to reach an agreement after hours of talks.

Beyond tariffs, Washington and Ottawa also have to agree on revisions to the USMCA, which Trump declined to renew in its current form.

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