Iran and China Develop Barter System to Bypass Sanctions

Iran has established a covert trade channel with China that allows Tehran to circumvent US sanctions, according to reports citing individuals familiar with the arrangement. This barter-like system converts Iranian oil proceeds into credit, which is then used to purchase goods from Chinese suppliers without relying on direct cross-border bank transfers.

The mechanism has become a significant financial lifeline for Tehran as Washington intensifies economic and military pressure. By routing payments through intermediaries, the arrangement helps shield Iranian banks and exporters from international scrutiny and the risk of further sanctions, maintaining a flow of essential goods despite diplomatic isolation.

Mechanics of the Credit Arrangement

Under this structure, Iranian oil revenues are effectively converted into credit usable for purchasing goods and services from Chinese entities. Payments are routed through parties not directly involved in conventional Iran-China financial transactions, keeping the trade largely outside the international banking system. According to sources, purchases have included medicines, vehicles, and communications equipment.

Notably, the mechanism was reportedly used at least once in the past year to facilitate contracts for air-defence equipment. While the specific Chinese manufacturers and equipment details remain unclear, the reported use for military items is significant given the reinstatement of a United Nations arms embargo on Iran in September 2025.

US Pressure and Diplomatic Tensions

The United States has sanctioned several smaller Chinese entities accused of facilitating Iranian oil shipments, though it has avoided imposing the harshest measures on major Chinese financial institutions to prevent broader global economic consequences. In August, US Treasury Secretary Scott Bessent warned countries to reduce business ties with Iran or risk being cut off from the dollar-based financial system.

Iran and China have rejected the reimposition of sanctions, describing the European move as legally and procedurally flawed. The sanctions followed the US withdrawal from the 2015 nuclear agreement and Iran’s subsequent non-compliance with certain provisions, leading to the trigger of the so-called snapback mechanism by European powers.

Scale of Bilateral Oil Trade

China remains the principal destination for Iranian oil, accounting for more than 80 percent of Iran’s shipments in 2025, with imports averaging about 1.4 million barrels per day, according to data from Kpler. This scale has made alternative payment mechanisms increasingly important for Tehran, particularly as US sanctions restrict access to the international financial system.

The oil-for-goods arrangement is one of several mechanisms through which Iran obtains Chinese goods and services without direct payments. Much of the detail regarding this economic cooperation, which stems from a 25-year strategic partnership signed in 2021, has remained outside public view, as noted by GN geopolitics/trade (en-US). The forward question remains how Washington will respond to these evolving financial workarounds.