Iran-China oil barter system keeps billions flowing despite US sanctions: Report

Iran has been using a barter-like system to trade its oil for goods from China, allowing Tehran to bypass conventional international banking channels and keep billions of dollars in trade flowing despite US sanctions, according to Reuters.Under the arrangement, Iranian oil proceeds are converted into credits that can be used to pay Chinese suppliers, according to sources cited by Reuters. The system has been used for medicines, vehicles and communication equipment and, at least once in the past year, for contracts linked to air defence equipment, sources familiar with the matter told Reuters.The mechanism has also allowed China, the biggest buyer of Iranian crude, to continue accessing discounted oil while limiting the exposure of Chinese banks and exporters to international sanctions.How the system worksOil turned into import credit: Instead of Iranian buyers directly paying Chinese companies through international banking channels, proceeds from Iranian oil sales are placed into a system that creates credits for purchases from China.A special-purpose vehicle handles payments: Sources said a special-purpose vehicle (SPV) is used to pay Chinese companies supplying goods to Iran. The Iranian and Chinese sides manage the funds, with Iranian authorities authorising importers to access the credits.Funds move through Chinese financial entities: A China-based entity known as ChuXin allegedly receives hundreds of millions of dollars a month linked to Iranian oil proceeds and then transfers money to Chinese exporters and companies involved in infrastructure projects, according to people familiar with the arrangement.Most funds go to infrastructure: About 70 per cent of the proceeds handled by ChuXin are allocated to infrastructure projects, while the remainder goes into the SPV used to pay companies supplying goods to Iran, sources said.The system avoids direct Iran-China payments: The arrangement means Chinese manufacturers supplying Iranian buyers do not necessarily deal directly with Iran or receive payments through international banking channels, helping insulate them from sanctions-related scrutiny.The mechanism has been running for years: Sources said the system has been in place since at least 2021 and was initially used for medicines and Covid-19 vaccines. They estimated that $2 billion to $2.5 billion flowed through the SPV over the past year.Oil remains the foundation: China accounted for more than 80 per cent of Iran's shipped oil exports in 2025, at an average of about 1.4 million barrels per day, according to Kpler data.The arrangement, described by Reuters, illustrates how Iran and China have maintained trade despite US sanctions and restrictions on Tehran's oil exports. The US has sanctioned some Chinese entities involved in Iranian oil trade, but has so far avoided the most sweeping measures that could have wider effects on the global economy.However, China's foreign ministry, responding to Reuters' questions, 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 authorized by the United Nations Security Council,” it said.The arrangement could face greater pressure from the US blockade of Iran. Reuters reported last week that no Iranian crude cargoes had successfully transited the Strait of Hormuz to China since the blockade was reinstated on July 14.Get the latest Business News and Live updates. Download the TOI app.