The United States now has a potential opportunity to negotiate on trade and denuclearization through the global oil industry. Whether it was intentional or not, the Trump administration has found itself with an ace up its sleeve and an opportunity to get more out of China than most expected.

China will likely end up being the last major customer of Iranian oil. In April, China purchased 9.6 million barrels per day of oil from global suppliers, according to China’s own data. That is almost as much oil as the U.S. or Saudi Arabia produces in a typical recent month, and yet China produces almost no oil of its own. Much of that oil imported by China comes from Saudi Aramco, which has ownership stakes in Chinese refineries and has long-term contracts for that market. A lot of the oil imported by China also comes from Russia via a new pipeline between the two countries. But China is always looking for more and cheaper oil to feed its growing refining and petrochemical manufacturing sector as well as its growing strategic petroleum reserve.

It will not be easy for China to continue or increase purchases from Iran. China faces the same problems that are forcing all of these other countries and companies to abandon their relationships with Iran. The United States can punish and fine almost any entity that violates unilateral U.S. sanctions with Iran. The U.S. can do this if the firm that does business with Iran also does business with U.S. entities (called secondary sanctions), and in this globalized economy almost every major business is tied to U.S. trade.

A street money exchanger, puts US dollars in a plastic bag, in Ferdowsi St. in downtown Tehran, Iran. (AP Photo/Vahid Salemi, File)

If China buys Iranian oil after November 4, it will not be able to pay in U.S. dollars, the traditional currency for oil trades. China could pay in its own currency, yuan, because Iran is desperate enough to accept it, but China cannot pay through any bank that wishes to do business with the U.S. or that bank will face punishment from the U.S. Even if China pays in yuan and goes through a special bank designated to avoid business with the U.S., it cannot use the typical international wire transfer means like SWIFT. Nor can China pay Iran in paper yuan, because Iran has no use for that currency. Iran cannot use yuan to pay its government employees or domestic vendors.

It is possible that Iran will barter its oil to China in exchange for goods and services such as assistance with Iran’s infrastructure. Chinese companies are currently contracted for such projects in Iran. However, this will not help Iran pay its government employees and vendors or improve its economic prospects.

The best situation for Iran and for China would be if Chinese banks and Chinese oil firms could receive an exemption from the U.S. Treasury department. Iran could then sell oil to China, which, through its exemption, could pay Iran. There would probably be a cap on the amount of oil China could buy under an exemption, so that the sales would not seriously improve the Iranian economy or lessen political pressure on the Iranian regime. At the same time, China could get cheap oil - something it wants.

The U.S. could use sanctions waivers on Iranian oil as a bargaining chip in its ongoing negotiations with China . In return for waivers to purchase Iranian oil, the U.S. could seek concessions in trade negotiations (primarily lower tariffs on American raw materials, food, and products) and further assistance in pressuring North Korea to denuclearize and possibly liberalize. China has the world’s second largest economy with few oil resources of its own. It is always looking for a good deal on oil. To be clear, the U.S. doesn't have to give exemptions to China, but it could, as a powerful bargaining chip in broader negotiations.

Ellen R. Wald, Ph.D. is a historian and consultant on energy and geopolitics. She is the author of Saudi, Inc., president of Transversal Consulting & a Senior Fellow at the Atlantic Council.