How China Helps Tehran Bypass US Sanctions
News Desk
Tehran: Beneath the pressure of sweeping US sanctions, Iran appears to have built a financial lifeline with China that allows billions of dollars in trade to continue largely outside the international banking system.
A special Reuters investigation, citing Iranian officials and other sources familiar with the arrangements, has revealed a discreet barter-like mechanism under which Iran supplies crude oil to Chinese buyers while using the proceeds to obtain essential Chinese goods, ranging from medicines and vehicles to communications and military equipment.
The system has allowed Tehran to keep vital trade channels open while limiting the exposure of Chinese banks to US sanctions.
A financial system outside the banks
At the centre of the arrangement is a fund described as a Special Purpose Vehicle (SPV).
Rather than sending payments for Iranian crude directly through the international banking system, Chinese buyers reportedly deposit money into the fund. The proceeds can then be used by Iran as credit when it needs to pay Chinese suppliers.
The mechanism is reportedly managed through institutions linked to China’s Ministry of Commerce and Iran’s Central Bank.
Reuters estimates that between $2 billion and $2.5 billion worth of trade passed through the arrangement over the past year.
The system effectively turns oil revenues into a pool of purchasing power, allowing Iran to obtain Chinese goods without relying on conventional cross-border dollar transactions.
From medicines to military equipment
What began during the Covid-19 pandemic as a mechanism for facilitating the supply of vaccines and medicines has reportedly evolved into a much broader trading channel.
According to the Reuters investigation, the system has been used for purchases of medicines, communications equipment and other civilian goods.
More significantly, it was reportedly used at least once last year in connection with contracts worth millions of dollars for the supply of air-defence equipment.
That development illustrates how a mechanism initially designed to keep humanitarian trade moving may have grown into a channel capable of supporting Iran’s wider strategic and defence requirements.
China’s role
China is the world’s largest buyer of Iranian oil and purchased more than 80 per cent of Iran’s oil exports in 2025, according to the Reuters report.
For Beijing, the arrangement offers access to relatively cheap Iranian crude while helping shield major Chinese financial institutions from direct exposure to US sanctions.
For Tehran, meanwhile, it provides a way to convert oil exports into badly needed imports at a time when sanctions have severely restricted its access to international finance.
The arrangement also gives both sides room to maintain trade while attempting to keep their most sensitive financial institutions at arm’s length from sanctions risk.
The Strait of Hormuz factor
The secretive trade mechanism has gained even greater significance amid the latest escalation between Iran, the United States and Israel.
Washington has intensified pressure on Tehran to end the six-month-old conflict and reopen the Strait of Hormuz, a critical global energy corridor.
Reuters reported that no Iranian crude oil tanker had successfully reached China since the US naval blockade of the Strait began on July 14, adding another layer of pressure to Iran’s oil trade.
The disruption makes alternative financial and trading arrangements even more important for Tehran.
Washington raises the stakes
The United States has repeatedly warned countries and companies against helping Iran circumvent sanctions.
US Treasury Secretary Scott Bessant warned in August that countries continuing to conduct trade with Iran could face restrictions that would limit their access to the dollar-based financial system.
The Trump administration has also said it is working with the European Union and other allies to cut off financial resources that could support Iran’s nuclear ambitions.
The message from Washington is clear: access to the global financial system remains one of its most powerful tools for pressuring Tehran.
Beijing’s carefully worded response
China, however, appears unwilling to accept the US sanctions framework.
When the Chinese Foreign Ministry was asked specifically about the trading mechanism identified by Reuters, it said it was unaware of the system but reiterated Beijing’s opposition to unilateral sanctions that violate international law or have not been authorised by the UN Security Council.
That position reflects the delicate balance China is attempting to maintain.
Beijing wants access to Iranian oil and continued commercial ties with Tehran, but it also has an interest in preventing its major banks from becoming direct targets of US sanctions.
A message to Washington
For some experts, the arrangement represents more than a way of moving oil and goods.
It is also a signal from Beijing that the threat of secondary US sanctions cannot automatically prevent China from trading with countries targeted by Washington.
At the same time, China’s apparent effort to keep its major financial institutions separated from the transactions provides what diplomats often describe as “plausible deniability.”
The strategy allows Beijing to maintain economic relations with Tehran while reducing the risk of a direct confrontation between its financial system and the US Treasury.
A battle beyond battlefield
Iran’s secretive trade channel highlights how the sanctions war is increasingly being fought through financial architecture as much as through conventional diplomacy or military pressure.
For Tehran, the system offers a route to medicines, vehicles and potentially defence equipment when conventional banking channels remain heavily restricted.
For China, it secures access to discounted Iranian oil while testing the limits of Washington’s sanctions regime.
And for the United States, the challenge is becoming more complicated: sanctions can restrict access to the global financial system, but they become harder to enforce when major trading powers develop alternative channels outside it.
The emerging Iran-China arrangement therefore represents more than a workaround for sanctions. It is a glimpse into a broader contest over who controls the financial networks through which international trade is conducted, and how far those networks can be bypassed when geopolitical interests collide.
