Iran and China run secret barter network to bypass oil sanctions

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.”