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Iran has built an oil-for-goods system that converts crude sales into controlled financing for Chinese products and infrastructure, allowing Tehran to monetize its largest source of foreign currency without conventional dollar-based payments. Iranian and Western sources familiar with the arrangement said it funds medicines, vehicles, communications equipment and projects, while limiting direct financial links between Iranian buyers and Chinese suppliers exposed to Western sanctions.

Details

• Financial route: An entity acting for Chinese state-owned oil trader Zhuhai Zhenrong deposited hundreds of millions of dollars monthly, at least until this year, with the little-known Chinese financial entity ChuXin. The money covered purchases through a Hong Kong-registered company linked to Iran’s national oil company. ChuXin then paid exporters and infrastructure contractors through additional Chinese financial institutions.
• Revenue allocation: About 70% of the Iranian oil revenue handled through ChuXin is allocated to infrastructure projects. The remainder goes to a special-purpose vehicle financing Chinese goods supplied to Iran. Two senior Iranian sources familiar with national decision-making confirmed the vehicle’s existence.
• Approval chain: The vehicle is managed by one entity acting for China’s Ministry of Commerce and another linked to Iran’s central bank. Once the bank authorizes an importer to access funds, the Iranian-linked entity notifies its Chinese counterpart, allowing payment to be released to suppliers.
• Defense purchases: The arrangement was used at least once during the past year for contracts worth millions of dollars involving air-defense equipment supplied to Iran. For ordinary purchases, Chinese manufacturers do not deal directly with Iran; intermediaries separate exporters from oil proceeds and reduce their exposure to international restrictions.
• Oil concentration: Decades of U.S. sanctions have narrowed Iran’s buyer pool, leaving China dominant in its crude exports. Kpler estimates China accounted for more than 80% of Iranian oil shipments in 2025, averaging about 1.4 million barrels a day. Discounted crude benefits Chinese refiners while Iran gains a critical trade channel.
• Sanctions pressure: Washington has sanctioned several smaller Chinese entities accused of facilitating Iranian oil shipments, but has stopped short of its strongest measures against major Chinese financial institutions, partly because of potential consequences for global energy markets. The structure reduces direct exposure for companies participating in ordinary trade.

Background

Iran and China signed a 25-year strategic partnership in 2021, covering energy, infrastructure and other sectors. Both governments have repeatedly condemned Western sanctions as unilateral and illegal, and pledged to defend their economic interests as cooperation expands beyond a conventional oil buyer-seller relationship.

What’s next

The immediate indicator is whether Iranian crude shipments to China resume through the Strait of Hormuz. No China-bound Iranian cargoes have passed through the waterway since the U.S. naval blockade was reinstated on July 14, disrupting the system’s economic foundation.