Iran is operating a covert, barter-like trade mechanism to bypass sanctions on its oil sales and procure billions of dollars in goods from China, including military hardware.

Speaking to the Reuters news agency, two senior Iranian officials and three sources closely monitoring the matter said the Tehran administration receives credits for goods imported from China instead of cash in exchange for the oil it sells to the country.

The sources, who spoke on condition of anonymity, emphasised that this method of swapping oil revenues for Chinese goods provides an immediate financial lifeline to the Tehran government at a time when the US has intensified economic and military pressure over its nuclear programme.

China, the world’s largest crude importer, continues to access discounted Iranian oil through this arrangement while shielding its banks and exporting companies from the risk of international penalties.

Although the Washington administration has imposed sanctions on several small-scale Chinese entities facilitating the transport of Iranian oil, it avoids sweeping measures that could shake the global economy.

The US has stepped up its pressure as it seeks to reopen the Strait of Hormuz amid the ongoing war between the two countries.

US Treasury Secretary Scott Bessent said last month that countries failing to cut commercial ties with Tehran would risk exclusion from the dollar system.

It remains unclear how the barter mechanism has been affected by the US naval blockade imposed on Iran as part of the six-month-old war.

However, since the reimposition of the blockade on 14 July, no shipments of Iranian oil passing through the Strait of Hormuz to China have been recorded.

Beijing and Tehran, which describe Western unilateral sanctions as illegal, refrain from disclosing publicly how they sustain their trade.

Sources state that Tehran introduced this system to obtain pharmaceuticals, vehicles, and communications equipment. Chinese manufacturers are said to have no direct contact with Iran, and there is no indication that they are violating sanctions.

On the other hand, the mechanism was utilised at least once last year under contracts supplying Iran with millions of dollars’ worth of air defence equipment. The sources provided no details regarding the shipments in question, and the transactions were not independently verified.

The United Nations conventional arms embargo returned alongside other sanctions in September 2025 following the collapse of the 2015 nuclear agreement between Iran and world powers.

Tehran had withdrawn from the terms of the agreement, while Beijing and Tehran described the European nations’ automatic reimposition of sanctions as legally flawed.

Responding to questions from Reuters, the Chinese Ministry of Foreign Affairs stated that it had no knowledge of the trade structure in question.

Beijing stated that it opposes unilateral sanctions lacking United Nations Security Council authorisation and having no basis in international law.

Iran’s diplomatic missions in New York and Geneva remained silent on the inquiries. A US official speaking on behalf of the White House stated only that they are working with international partners, including the EU, to prevent Tehran from achieving its nuclear goals.

According to data analytics company Kpler, China purchased more than 80% of the crude oil exported by Iran in 2025. This share equates to an average of 1.4 million barrels per day.

Although the two countries signed a 25-year strategic partnership agreement in 2021 covering energy and infrastructure, the operational details of their cooperation remain largely confidential.

The model in question constitutes only one of the networks through which Iran procures goods and services from China without passing through international banking channels.

A Western official and two other individuals tracking the matter said that a buyer acting on behalf of state-owned Chinese oil company Zhuhai Zhenrong deposited hundreds of millions of dollars each month until this year into ChuXin, a shadow financial entity based in China.

These deposits reportedly represent payment for oil purchased from a Hong Kong-based company linked to the National Iranian Oil Company (NIOC).

Approximately 70% of the oil revenues routed through ChuXin is allocated to infrastructure projects in Iran. The remainder is transferred to the accounts of a special purpose vehicle (SPV) established to disburse payments to companies supplying goods to Iran.

Sources close to Iran’s decision-making apparatus confirm the existence of this financial mechanism.

Fund management is shared between a firm acting on behalf of the Chinese Ministry of Commerce and another entity linked to the Central Bank of Iran. When the Central Bank of Iran authorises importers, money transfers are directed to supplier firms. While the name ChuXin does not appear in official records, one source noted that the structure exists solely on balance sheets.

Andrea Ghiselli, an international politics specialist at the University of Exeter, stated that Beijing uses these indirect networks to demonstrate that it will not bow to US secondary sanction threats.

Highlighting that Chinese leaders aim to protect their own banks and firms from being pushed out of the global financial system, Ghiselli said: “They want to create deniability.”

China’s Ministry of Finance will lead a total capital injection of $54 billion into state-owned insurance companies and banks as part of a coordinated push to reinforce the capital structure across the country’s financial system, according to details disclosed by the institutions in statements on Sunday.

China Life Insurance (Group) Co, the country’s largest life insurer, will receive 35 billion yuan ($5.2 billion) in capital support, whilst China Taiping Insurance Group will receive 7 billion yuan.

In a separate announcement, People’s Insurance Company (Group) of China (PICC) said it plans to raise up to 15 billion yuan via a private placement of A-shares to the Ministry of Finance. The company stated that the proceeds will be used to replenish its capital.

The initiative could fortify the financial position of state insurers, which have been called upon to support the equity market with medium- and long-term funds. At the same time, it could position these institutions to help regulatory authorities manage smaller and higher-risk insurance companies.

Financial sector stability

China’s insurance industry has been contending with shrinking profitability caused by prolonged low interest rates. Solvency ratios across numerous small and medium-sized insurers have also deteriorated.

China Export and Credit Insurance Corp stated that the Ministry of Finance will inject 10 billion yuan to boost the company’s core capital. China Reinsurance (Group) announced that it will execute a capital increase of 3 billion yuan.

“The capital injection represents an important step for enhancing the financial sector’s capacity to serve the real economy and promoting high-quality development across the financial and insurance industries,” China Life said in a statement. The insurer added that the capital support will improve the group’s resilience to risks.

Taiping also noted that the funds provided will strengthen the company’s solvency and other core metrics.

Banks benefit from recapitalisation plan

Separately, three state banks announced on Sunday that they will receive capital support totalling 290 billion yuan.

The recapitalisation framework was first announced during the annual parliamentary meetings in March this year. The move broadens a funding mechanism deployed last year to strengthen the capital structures of several other major state-owned lenders.

Agricultural Bank of China and Industrial and Commercial Bank of China (ICBC), two of the country’s largest state-owned lenders, announced plans to raise up to 160 billion yuan and 100 billion yuan, respectively, through private placements of A-shares to the Ministry of Finance, China National Tobacco Corp, and affiliated entities.

Both lenders confirmed that all net proceeds will be deployed to replenish their Core Tier 1 capital. The measure is expected to help sustain credit expansion at a juncture when Beijing is increasingly relying on state lenders to support economic growth.

Weak credit demand remains a persistent headwind for the world’s second-largest economy, while continuing to erode profitability across the banking sector.

Export-Import Bank of China, one of the country’s three policy banks, stated that the Ministry of Finance will inject 30 billion yuan of capital into the institution, thereby bolstering its capital base.

The Bank of Japan faces a critical policy showdown as US Treasury Secretary Scott Bessent declares that the era of massive stimulus is over.

When the US joined Japan’s efforts to support the yen, it did not do so unconditionally. This week, US Treasury Secretary Scott Bessent laid out the terms clearly: accelerate interest rate hikes and abandon outmoded ideas regarding massive economic stimulus.

A month after the rare joint intervention carried out by the US and Japan to bolster the yen, Bessent told Reuters that recent currency movements were not disorderly, signalling little appetite for fresh market intervention.

Instead, he expressed hope that Bank of Japan (BOJ) Governor Kazuo Ueda would “do the right thing” in monetary policy to combat the weak yen.

With inflationary pressures mounting, the BOJ was already widely expected to raise interest rates in September. However, Bessent’s remarks effectively boxed the central bank in, while increasing pressure for a faster pace of rate hikes going forward.

“The joint intervention in July was Bessent’s message to Japan that it now needs to get its act together on inflation,” said Izuru Kato, chief economist at Totan Research and a veteran BOJ watcher.

“Japan faces a currency crisis that is becoming increasingly difficult to control without US assistance. For a country in such a position, raising rates even once every three months may be too slow,” Kato said.

The weak yen has pushed up import prices and headline inflation, raising household living costs and creating a headache for Japanese policymakers.

From Washington’s perspective, a BOJ that moves too slowly on rate hikes, combined with loose fiscal policy, could trigger a sell-off in the yen and Japanese government bonds. This could disrupt financial markets with spillover effects reaching US Treasury yields—an outcome Washington wants to avoid.

Markets are focused on potential remarks by BOJ Governor Ueda following his participation in a two-day meeting of G20 finance leaders in Asheville, North Carolina, which concludes on Tuesday. A US Treasury official told Japanese public broadcaster NHK that Bessent met Ueda on Sunday and conveyed that interest rate hikes were necessary.

Even without US pressure, recent hawkish communication from the BOJ indicates it is preparing for a near-term rate hike in response to broadening inflation pressures.

“Given all the pressure coming from producer prices, consumer inflation is likely to accelerate. If that happens, the BOJ must act,” said a source familiar with the central bank’s thinking.

However, a September rate hike is already factored into market pricing. Consequently, the BOJ may need to commit to faster rate increases to alleviate downward pressure on the yen.

“Japan’s real interest rates are clearly too low. One or two more rate hikes will not be enough to reverse the yen’s downward trend,” said Naoyuki Shinohara, Japan’s former top currency diplomat.

Oxford Economics announced that it now expects the BOJ to raise rates in September and December this year, followed by a third hike in April 2027—a faster tightening cycle than the firm initially projected.

“The economic and political cost of disappointing the markets and the US has become too great for the BOJ and the government to ignore,” Shigeto Nagai, head of Japan economics at Oxford Economics, said in a report published on Monday.

For dovish Prime Minister Sanae Takaichi, the starkest message may be Bessent’s declaration that the era of Abenomics is over. Introduced in 2013 to end prolonged deflation, Abenomics combined sweeping monetary easing, heavy government spending, and a structural growth strategy.

Speaking to Reuters on the country’s fiscal policy, Bessent said Japan had defeated deflation and should now “sit back and enjoy the success of Abenomics and let it run its course.” Some analysts interpreted these remarks as a critique of Takaichi’s expansionary fiscal approach.

“This is a message to the Takaichi administration to avoid excessively loose fiscal policy,” a Japanese government official said regarding Bessent’s comments.

A senior ruling party official said: “These remarks show that the US is stepping up its demands on Japan’s policies.”

Both officials spoke on condition of anonymity due to the sensitivity of the matter.

Takaichi, an advocate of Abenomics, has laid out an ambitious spending agenda aimed at boosting investment in growth areas and easing the impact of rising living costs on households.

Following Takaichi’s pledge to remove spending caps in key growth areas, Japanese media reported that ministries and public agencies likely submitted their highest-ever initial budget requests for the upcoming fiscal year.

The focus on large-scale spending has unnerved investors, driving Japanese government bond yields to 30-year highs, which could also generate knock-on effects for US Treasury yields.

“The best way to support the yen would be for the Takaichi administration to deliver a credible message committing to fiscal reform,” said Shinohara, who also served as deputy managing director at the International Monetary Fund (IMF) following his tenure at the Ministry of Finance.

“However, the likelihood of that happening is extremely low,” Shinohara added.