Key facts
- Iran is using a barter-like system to exchange oil for Chinese goods, bypassing U.S. sanctions.
- The arrangement allows Iran to purchase billions of dollars worth of items, including military gear, medicines, vehicles, and communication equipment.
- This mechanism provides a financial lifeline to Tehran and allows China to access discounted oil.
- A Chinese financial entity, ChuXin, reportedly handles hundreds of millions of dollars monthly for oil purchases.
- Funds are allocated to infrastructure projects and companies supplying goods to Iran.
- The system is managed by entities linked to China's Ministry of Commerce and Iran's central bank.
Iran has developed a clandestine barter-like system to circumvent U.S. sanctions, allowing it to purchase billions of dollars worth of goods from China, including military equipment, according to sources familiar with the matter. This arrangement provides Tehran with a crucial financial lifeline amid intensified U.S. economic and military pressure.
The mechanism involves Iran exchanging its oil for credits that can be used to buy Chinese imports. This strategy helps China, a major crude importer, secure discounted Iranian oil while shielding its banks and companies from international scrutiny and potential penalties. While the U.S. has sanctioned some smaller Chinese entities involved in facilitating Iranian oil shipments, it has refrained from imposing more severe measures that could disrupt the global economy.
Sources indicated that Iran has used this arrangement to acquire medicines, vehicles, and communication equipment. The mechanism was also reportedly used at least once in the past year to supply Iran with air defense equipment worth millions of dollars. However, Reuters could not independently verify these specific transactions.
Details of the trade mechanism suggest that a buyer for Chinese state-owned oil trader Zhuhai Zhenrong has been depositing hundreds of millions of dollars monthly with a Chinese financial entity known as ChuXin. These funds are then channeled to Chinese exporters and companies involved in infrastructure projects in Iran. Approximately 70% of the oil proceeds handled by ChuXin are allocated to infrastructure, with the remainder used to pay suppliers of goods to Iran. The funds within a special purpose vehicle (SPV) are reportedly managed by entities linked to China's Ministry of Commerce and Iran's central bank.
China's foreign ministry stated it was unfamiliar with the situation and reiterated its opposition to unilateral sanctions. A U.S. official confirmed the administration's efforts to deny Iran the means to advance its nuclear ambitions but did not comment on the specific arrangement. The barter system has reportedly been in place since at least 2021, initially facilitating the import of medicines and COVID-19 vaccines, and has become increasingly vital for trade as U.S. pressure on companies doing business with Iran has grown.