By John Irish, Parisa Hafezi and Joe Cash
PARIS, Sept 10 (Reuters) – Iran has used a barter-like arrangement to bypass sanctions on its oil sales and buy billions of dollars’ worth of goods from China, including military gear, two senior Iranian sources and three other people familiar with the matter told Reuters.
The secretive trade mechanism, in which Iranian oil is exchanged for credits for Chinese imports, has provided a financial lifeline for Tehran in recent years as the United States stepped up economic and military pressure over its nuclear program, according to the sources, who spoke on condition of anonymity.
It has also helped China, the world’s biggest crude importer, retain access to discounted Iranian oil while shielding banks and companies that export to the Islamic Republic from international scrutiny or penalties, they said.
The U.S. has imposed sanctions on some smaller Chinese entities that buy or facilitate shipments of Iranian oil but has stopped short of the most punishing measures that could have repercussions on the global economy.
Washington has intensified the pressure as it tries to resolve its war with Iran and reopen the Strait of Hormuz. In August, Treasury Secretary Scott Bessent warned countries to cut business ties with Iran or risk being forced out of the dollar-based financial system.
Reuters could not determine the impact on the barter-like arrangement of the U.S. naval blockade imposed on Iran as part of the six-month war. No Iranian crude cargoes have successfully transited the Strait of Hormuz to China since the blockade was reinstated on July 14, the news agency reported last week.
China and Iran have repeatedly denounced what they regard as illegal unilateral Western sanctions and have vowed to protect their interests. The countries are longstanding economic and political partners but have said little publicly about how they keep trade flowing despite international restrictions.
Iran has used the arrangement to buy medicines, vehicles and communication equipment from China, all the sources said. The manufacturers were not dealing directly with Iran, and there is no indication they were in breach of sanctions.
The mechanism was also used at least once in the past year in connection with contracts to supply Iran with air defense equipment worth millions of dollars, the sources said.
They did not provide details about any of the alleged transactions with Chinese manufacturers, and Reuters could not independently verify that they took place.
A U.N. embargo on the export of most major conventional weapons to Iran was reinstated with other sanctions in September 2025 after the U.S. withdrew from a 2015 nuclear accord between Iran and world powers during President Donald Trump’s first term, and Tehran stopped complying with some of its provisions.
Iran and China said the move by European countries to automatically restore the sanctions through a “snapback” mechanism was “legally and procedurally flawed.”
Responding to Reuters questions about the barter-like trade, China’s foreign ministry 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.
Iran’s U.N. missions in New York and Geneva did not respond to requests for comment.
In response to questions to the White House, a U.S. official said the Trump administration works with economic partners including the European Union to “deprive Iran of the material means of furthering its nuclear ambitions.” The official did not comment on the arrangement described to Reuters.
AVOIDING INTERNATIONAL BANKING CHANNELS
Decades of U.S. sanctions have left Iran with few oil customers. China is the main buyer, accounting for more than 80% of Iran’s shipped oil in 2025, or an average 1.4 million barrels per day, according to commodities data and analytics firm Kpler.
In 2021, the two countries signed a 25-year strategic partnership accord covering sectors such as energy and infrastructure, but public details remain scarce.
The arrangement described to Reuters is one of a number of mechanisms through which Iran purchases goods and services from China without paying Chinese companies directly through international banking channels, three of the sources said.
A Western official and two other people familiar with the matter said a buyer acting on behalf of Chinese state-owned oil trader Zhuhai Zhenrong was at least until this year depositing hundreds of millions of dollars a month with an obscure, China-based financial entity known as ChuXin.
The deposits covered purchases agreed with a Hong Kong-registered company linked to Iran’s national oil company, the people said, citing material gathered by intelligence agencies. ChuXin would then send funds to Chinese exporters and companies that build infrastructure in Iran, likely via other Chinese financial institutions.
Roughly 70% of the Iranian oil proceeds handled by ChuXin are allocated to infrastructure projects, the three sources said, an arrangement first reported by the Wall Street Journal last October. The rest go into accounts belonging to a special purpose vehicle (SPV) used to pay companies that supply goods to Iran.
The Iranian sources, who are close to the country’s decision-making circle, confirmed the existence of the SPV, which has not previously been reported.
All five sources said funds in the SPV are managed by two entities: a firm acting on behalf of China’s Ministry of Commerce and one linked to Iran’s central bank. The Iran-linked firm notifies the Chinese one when Iran’s central bank authorizes importers to access funds in the SPV so payments can be sent to the suppliers, three said.
Reuters could find no record of a financial institution called ChuXin in Chinese company registries or of the firms said to be acting on behalf of China’s commerce ministry and Iran’s central bank. One source said ChuXin might only exist on a spreadsheet.
Companies with the same names as those said to be acting on behalf of the National Iranian Oil Company (NIOC) and Zhuhai Zhenrong are listed in the Hong Kong companies registry, but Reuters could find no public records of their ownership structure or business dealings. Neither responded to questions delivered to their registered addresses, which are in offices belonging to secretarial services companies.
PLAUSIBLE DENIABILITY
Zhuhai Zhenrong has been a target of U.S. sanctions over its alleged dealings with Iran. One source shared what appeared to be a July 22, 2025, letter from NIOC to the Chinese oil trader requesting confirmation of an outstanding balance – evidence, the person said, of a business relationship.
Reuters could not independently authenticate the document. NIOC and Zhuhai Zhenrong did not respond to questions about it or their alleged roles in the trade mechanism.
Iran’s central bank and China’s commerce ministry also did not respond to requests for comment.
The mechanism described to Reuters has been in place since at least 2021 and was first used to supply medicines and COVID-19 vaccines to Iran, three sources said.
As Washington has stepped up pressure on companies that do business with Iran, it has become increasingly important for trade, they said. They estimated that between $2 billion and $2.5 billion flowed through the SPV over the last year.
China is using such arrangements to push back against the U.S. and show it cannot be coerced with the threat of secondary sanctions, said Andrea Ghiselli, an international politics lecturer at the University of Exeter who studies Beijing’s relations with the Middle East.
But he said China’s leaders do not want their banks or companies excluded from the international financial system.
“They want plausible deniability.”
(John Irish reported from Paris, Parisa Hafezi from Dubai and Joe Cash from Beijing; Additional reporting by Anne Marie Roantree in Hong Kong; Writing by John Irish; Editing by Andrew Gray and Alexandra Zavis)
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