Iran and China Operate Secret Trade Mechanism to Bypass Sanctions

Iran is utilizing a clandestine barter-like trade mechanism to circumvent U.S. sanctions on its oil sales and acquire billions of dollars worth of goods from China, including military equipment, according to senior Iranian officials and sources familiar with the matter speaking to Reuters. This secret arrangement converts Iranian oil into financial credits for Chinese imports, providing Tehran with a critical financial lifeline amid escalating U.S. economic and military pressure related to its nuclear program.

The mechanism allows Iran to purchase millions of dollars worth of air defense equipment, medicine, vehicles, and communication gear. It operates entirely outside the international banking system to shield Chinese companies and banks from Western penalties. Western and intelligence sources indicate that a buyer from the Chinese state-owned oil company Zhuhai Zhenrong deposits hundreds of millions of dollars monthly into an obscure financial entity called ChuXin, which may exist only as a data record.

Approximately 70% of these funds are directed to infrastructure projects in Iran. The remaining portion is channeled through a special purpose vehicle (SPV) secretly managed by representatives of Iran's central bank and China's commerce ministry. This SPV facilitated the transfer of $2 billion to $2.5 billion in the past year for direct payments to Chinese suppliers.

This deal challenges U.S. efforts to cripple Iran's economy, particularly the naval blockade in the Strait of Hormuz reimposed in July. Despite Beijing's official stance that it does not recognize the arrangement and opposes unilateral sanctions lacking UN Security Council approval, China remains Iran's largest oil purchaser, accounting for over 80% of its exports in 2025. A U.S. official reiterated the Trump administration's commitment to working with economic partners to deny Iran the resources for its nuclear ambitions.