China has built a covert financial and logistical network that allows it to keep buying vast amounts of Iranian oil despite U.S. sanctions. According to new reporting from The Wall Street Journal by Laurence Norman and James T. Areddy, Beijing’s arrangement has quietly funneled billions of dollars into Iran’s economy while shielding both countries from Western scrutiny. The system involves an intricate mix of shadow banking, state-backed insurers, construction barters, and hidden maritime routes. In doing so, China has become the lifeline for Tehran’s oil revenues and one of the few powers capable of undermining Washington’s sanctions strategy.
The Secret Financing Mechanism
The Journal’s investigation reveals a hidden payment structure designed to avoid the global banking system entirely. Western officials describe it as a “barter-like” system: Iranian oil flows to China, and in exchange, Chinese state companies construct infrastructure inside Iran. Completing the loop are two Chinese entities. The first is Sinosure, China’s state export credit insurance agency, which underwrites the projects. The second is Chuxin, a shadowy financial firm that is so secretive it does not appear on any public registry of Chinese financial institutions.
Officials told the Journal that as Iranian oil is shipped to China, the transactions are registered under front companies linked to Iran’s Naftiran Intertrade Company. Payments are deposited into Chuxin by Chinese buyers such as the sanctioned oil trader Zhuhai Zhenrong. Chuxin then transfers the funds to Chinese engineering firms that are building infrastructure across Iran—projects ranging from refineries and airports to rail networks.
According to estimates cited by Western officials, as much as 8.4 billion dollars in oil revenue moved through this pipeline last year. One European official familiar with the system described it as “a loop that keeps Iran afloat while insulating China from direct exposure to U.S. sanctions.”
How China Became Iran’s Main Customer
The partnership between Beijing and Tehran intensified after 2018, when former President Donald Trump withdrew the United States from the Iran nuclear agreement and reimposed sanctions. The goal was to drive Iran’s oil exports to zero, but that never happened. Instead, China stepped in as the dominant buyer.
By 2025, about 90 percent of Iran’s oil exports—roughly 1.7 million barrels per day—were going to China, according to the U.S. Energy Information Administration. The trade now forms the backbone of Iran’s economy, generating more than 40 billion dollars annually despite the sanctions.
Western officials have repeatedly sanctioned individual Chinese traders, but the flow has continued largely unhindered. As one senior U.S. Treasury official, John K. Hurley, stated last month, “Iranian entities rely on shadow banking networks to evade sanctions and move millions.” These networks, he said, involve intermediaries in Hong Kong and the United Arab Emirates who coordinate financial transfers on Tehran’s behalf.
The Mechanics of the Hidden Oil Flow
Iran’s oil reaches China through elaborate deception. Tankers often disable their transponders and conduct ship-to-ship transfers in international waters to disguise the origin of the cargo. Cargoes are sometimes blended with oil from Russia or Venezuela and rebranded with fake documentation. Officials have tracked more than sixty of these shadow transfers in recent years, often involving ships sailing under false identities.
To further obscure ownership, Iranian operators have used naval mortgage schemes, registering their fleets through offshore shell companies. Many of these shell firms are tied to Chinese nationals or intermediaries, effectively creating a shared shadow fleet. By 2023, the network controlled over thirty vessels worth nearly a billion dollars, carrying an estimated 130 million barrels of sanctioned crude.
China’s Financial Stake and Motivation
China’s motivation for maintaining these channels is both economic and strategic. Iranian and Russian crude is sold at heavy discounts because of sanctions, and Beijing’s refiners depend on those low prices to stay profitable. Data from commodities firm Kpler shows that since 2022, hundreds of smaller “teapot” refineries in China’s Shandong province have shifted to sanctioned Iranian oil.
Tom Reed, vice president for China crude at Argus Media, told the Journal that “Iranian crude is about two dollars cheaper than Oman crude oil,” adding that the price gap used to be much wider before the risks increased. Those small margins mean everything for independent refiners, which operate on tight profit lines.
A report by the Journal in June quoted one energy analyst saying that “Chinese refiners have become addicted to importing Iranian crude oil at cheap prices.” For many, this is the only way to compete with the state-owned giants.
Sinosure’s Role and State Backing
At the heart of the operation is Sinosure, formally known as China Export & Credit Insurance Corporation. The insurer plays a crucial role by guaranteeing Chinese loans and construction contracts in sanctioned markets like Iran. The Journal reported that Sinosure had backed more than nine trillion dollars in trade and investment worldwide as of late 2024.
AidData, a research lab at William & Mary, found that China has committed over 25 billion dollars to infrastructure in Iran since 2000, with Sinosure directly involved in at least sixteen of those fifty-four projects. Brad Parks, AidData’s executive director, explained that Sinosure acts as “the financial umbrella under which every creditor and every construction contractor has to operate.”
China’s Foreign Ministry denied knowledge of the payment system, stating it opposes what it calls “illegal unilateral sanctions” and maintains that cooperation between sovereign nations is allowed under international law.
The Russian Connection
Beijing’s secret oil logistics now serve more than just Iran. Since Western sanctions were expanded against Russia in 2022, Moscow has also begun using Iran’s transshipment routes and China’s financing structure to sell its oil. In April 2025, China imported about 1.3 million barrels per day of Russian crude, up twenty percent from the previous month. Analysts believe a significant portion of those shipments were blended with Iranian oil and disguised before entering Chinese ports.
This tri-national cooperation has created a parallel energy market largely immune to Western sanctions. “These dark fleets have become a model for keeping shadow oil volumes flowing eastward,” observed Claire Jungman of the data firm Vortexa.
Strategic Dependence and Political Risks
The arrangement gives China steady access to cheap energy but also ties its supply security to one of the most volatile regions in the world. Nearly all Iranian exports leave through Kharg Island, Iran’s primary terminal in the Persian Gulf. If that facility were destroyed or blockaded, Iran’s exports—and by extension China’s imports—could collapse overnight.
Homayoun Falakshahi, a senior analyst at Kpler, told the Journal that “there are clear targets that can be attacked very easily,” calling Kharg Island the single biggest vulnerability in Iran’s export network. Rising tensions between Israel and Iran have heightened these fears. After recent Israeli airstrikes on Iranian targets, Chinese Foreign Ministry spokesman Lin Jian warned, “China is deeply worried about the potential serious consequences of these actions,” and added that Beijing “opposes any violation of Iran’s sovereignty, security, and territorial integrity.”
To reduce its risk, China has been stockpiling oil. Government data showed that in May 2025, the country accumulated a surplus of 1.4 million barrels per day—enough to cushion a short-term supply disruption but not a prolonged one.
What Happens If the Flow Stops
If Iranian oil were cut off, China would have to turn to Saudi Arabia or the United Arab Emirates for emergency supply. Analysts at Goldman Sachs estimate that those producers could replace roughly 80 percent of lost barrels within six months. However, the cost would surge, and China’s smaller refiners would lose their price advantage. “For the first time in years, they would have to pay full price for a barrel of oil,” the Journal noted, which could force some refineries to shut down.
The consequences would ripple outward. Global oil prices would spike, and inflation pressures would increase worldwide. The White House, aware of this risk, has reportedly discouraged any direct attacks on Iranian export infrastructure, fearing a sharp rise in gasoline prices before the U.S. election season.
A Fragile Alliance
Despite the size of their trade, China’s leverage over Iran remains limited. Their 25-year partnership agreement, signed in 2021, promises up to 400 billion dollars in investment for infrastructure, energy, and defense cooperation. But analysts view the alliance as one of convenience rather than conviction. “This relationship will fall apart when the United States is not involved as a foe,” said one Middle East observer, noting that China’s domestic policies toward its own Muslim population contradict Tehran’s religious ideology.
Still, for now, both sides are benefiting. Iran gets hard currency and construction assistance, while China secures cheap oil and geopolitical influence. As one Western diplomat told the Journal, “It’s a marriage of necessity, not affection, but it works—for now.”
If that flow ever stops, China’s economy could feel the shock immediately. Its refiners would scramble for alternatives, prices would climb, and Beijing’s carefully cultivated energy security could begin to unravel. What once looked like a clever evasion of American sanctions might soon expose one of China’s most dangerous economic vulnerabilities.