Iran has used a barter-like arrangement to bypass sanctions on its oil sales and purchase billions of dollars’ worth of goods from China, including military equipment, according to two senior Iranian sources and three other people familiar with the matter who spoke to Reuters on condition of anonymity.
The arrangement allows Iranian oil to be exchanged for credits used to pay for Chinese imports. The mechanism has provided Tehran with a financial lifeline in recent years as the United States increased economic and military pressure over Iran’s nuclear programme.
It has also allowed China, the world’s biggest crude oil importer, to maintain access to discounted Iranian oil while helping shield banks and companies involved in exports to Iran from international scrutiny or penalties, the sources said.
The United States has imposed sanctions on some smaller Chinese entities involved in buying or facilitating shipments of Iranian oil, but has stopped short of imposing the most severe measures, which could have wider repercussions for the global economy.
Washington has intensified pressure as it seeks to resolve its war with Iran and reopen the Strait of Hormuz. In August, Treasury Secretary Scott Bessent warned countries to cut business ties with Iran or risk being excluded from the dollar-based financial system.
Reuters could not determine how the barter-like arrangement has been affected by the US naval blockade imposed on Iran as part of the six-month war.
No Iranian crude cargoes have successfully transited the Strait of Hormuz to China since the blockade was reinstated on July 14, Reuters reported last week.
China and Iran have repeatedly criticised what they consider illegal unilateral Western sanctions and pledged to protect their interests. The two countries are longstanding economic and political partners, but have disclosed little publicly about how they maintain trade despite international restrictions.
Iran has used the arrangement to purchase medicines, vehicles and communication equipment from China, all five sources said. The manufacturers were not dealing directly with Iran, and there was no indication that they had breached sanctions.
The mechanism was also used at least once during the past year in connection with contracts to supply Iran with air defence equipment worth millions of dollars, the sources said.
They did not provide details of the alleged transactions involving Chinese manufacturers, and Reuters could not independently verify that they took place.
A United Nations embargo on the export of most major conventional weapons to Iran was reinstated with other sanctions in September 2025 after the United States withdrew from a 2015 nuclear accord between Iran and world powers during President Donald Trump’s first term, and Tehran stopped complying with some of its provisions.
Iran and China said the decision by European countries to automatically restore the sanctions through a “snapback” mechanism was “legally and procedurally flawed”.
In response to Reuters’ questions about the barter-like trade, China’s Foreign Ministry said it was “not familiar with the situation you describe”.
“China has consistently opposed unilateral sanctions that have no basis in international law and have not been authorised by the United Nations Security Council,” it said.
Iran’s UN missions in New York and Geneva did not respond to requests for comment.
In response to questions from Reuters, a US official said the Trump administration works with economic partners, including the European Union, to “deprive Iran of the material means of furthering its nuclear ambitions”. The official did not comment on the arrangement described to Reuters.
Avoiding international banking channels
Decades of US sanctions have left Iran with few oil customers. China is the main buyer, accounting for more than 80% of Iran’s shipped oil in 2025, or an average of 1.4 million barrels per day, according to commodities data and analytics firm Kpler.
In 2021, Iran and China signed a 25-year strategic partnership accord covering sectors including energy and infrastructure, although public details remain limited.
The arrangement described to Reuters is one of several mechanisms through which Iran purchases goods and services from China without paying Chinese companies directly through international banking channels, three sources said.
A Western official and two other people familiar with the matter said a buyer acting on behalf of Chinese state-owned oil trader Zhuhai Zhenrong was, at least until this year, depositing hundreds of millions of dollars a month with an obscure China-based financial entity known as ChuXin.
The deposits covered purchases agreed with a Hong Kong-registered company linked to Iran’s national oil company, the people said, citing material gathered by intelligence agencies.
ChuXin would then transfer funds to Chinese exporters and companies building infrastructure in Iran, likely through other Chinese financial institutions.
About 70% of the Iranian oil proceeds handled by ChuXin are allocated to infrastructure projects, the three sources said. The arrangement was first reported by the Wall Street Journal last October.
The remainder goes into accounts belonging to a special purpose vehicle, or SPV, used to pay companies supplying goods to Iran.
The two Iranian sources, who are close to the country’s decision-making circle, confirmed the existence of the SPV, which had not previously been reported.
All five sources said funds in the SPV are managed by two entities: one firm acting on behalf of China’s Ministry of Commerce and another linked to Iran’s central bank.
The Iran-linked firm notifies the Chinese entity when Iran’s central bank authorises importers to access funds in the SPV, allowing payments to be sent to suppliers, three sources said.
Reuters could find no record of a financial institution called ChuXin in Chinese company registries, nor of the firms said to be acting on behalf of China’s Commerce Ministry and Iran’s central bank.
One source said ChuXin might exist only on a spreadsheet.
Companies with the same names as those said to be acting on behalf of the National Iranian Oil Company and Zhuhai Zhenrong are listed in Hong Kong’s companies registry. However, Reuters could find no public records showing their ownership structures or business dealings.
Neither company responded to questions delivered to their registered addresses, which are offices belonging to secretarial services companies.
Plausible deniability
Zhuhai Zhenrong has previously been targeted by US sanctions over its alleged dealings with Iran.
One source shared what appeared to be a July 22, 2025, letter from the National Iranian Oil Company to the Chinese oil trader requesting confirmation of an outstanding balance. The source said the letter was evidence of a business relationship.
Reuters could not independently authenticate the document. Neither the National Iranian Oil Company nor Zhuhai Zhenrong responded to questions about the document or their alleged roles in the trade mechanism.
Iran’s central bank and China’s Commerce Ministry also did not respond to requests for comment.
The mechanism described to Reuters has been in place since at least 2021 and was first used to supply medicines and COVID-19 vaccines to Iran, three sources said.
As Washington increased pressure on companies doing business with Iran, the mechanism became increasingly important to trade, they said.
The sources estimated that between $2 billion and $2.5 billion flowed through the SPV over the past year.
China is using such arrangements to push back against the United States and demonstrate that it cannot be coerced by the threat of secondary sanctions, said Andrea Ghiselli, an international politics lecturer at the University of Exeter who studies Beijing’s relations with the Middle East.
However, he said China’s leaders do not want their banks or companies excluded from the international financial system.
“They want plausible deniability.”
