How a billion-dollar sanctions dodge kept Chinese goods flowing to Iran

Iran has utilized a clandestine barter system to circumvent sanctions on its oil sales, purchasing billions of dollars' worth of goods from China, including military equipment, according to senior Iranian sources and three other individuals familiar with the matter. This financial arrangement, which involves exchanging Iranian oil for credits to purchase Chinese imports, has provided Tehran with a lifeline amid increasing economic and military pressure from the United States over the country's nuclear program.

The system has also benefited China, allowing it to maintain access to discounted Iranian oil while shielding banks and exporters from international scrutiny or penalties. While the U.S. has imposed sanctions on some smaller Chinese entities involved in the trade, it has largely avoided more stringent measures that could impact the global economy.

China has expressed support for the arrangement, denouncing what it perceives as illegal unilateral Western sanctions and vowing to protect its interests. Iran has also used the mechanism to procure various goods, such as medicines, vehicles, communication equipment, and air defense systems, from Chinese manufacturers. However, it is unclear whether these transactions breached any sanctions.

The U.N. embargo on the export of major conventional weapons to Iran was reinstated in September 2025 following the U.S. withdrawal from the 2015 nuclear deal and Iran's subsequent non-compliance with some of its provisions.