How Iran and China Built Trade Without Banks

How Iranian oil revenues became Chinese import credits, infrastructure and goods while bypassing conventional cross-border banking

By the IRANation Research Desk

For years, the central logic of sanctions on Iran has been financial.

Restrict Iranian banks. Penalize institutions that process Iranian transactions. Block access to the dollar system. Make it difficult for Iran to receive payment for exports and difficult for foreign suppliers to receive payment for what they sell to Iran.

China and Iran appear to have developed a different answer.

Instead of finding a safer bank through which money could be transferred into Iran, they built arrangements in which a substantial part of the money did not need to enter Iran at all.

Iranian oil was sold in China. The proceeds remained in China. Those proceeds were then converted into financing for Chinese-built infrastructure or credits that could be used to pay Chinese suppliers.

Reuters reported in September 2026 that between $2 billion and $2.5 billion passed through one previously undisclosed special-purpose vehicle over the preceding year. The mechanism was used to purchase medicines, vehicles and communications equipment, and was reportedly connected at least once to contracts for air-defense equipment. Reuters could not independently verify the individual transactions.

This is sometimes described as barter.

That description is useful, but incomplete.

Oil is not literally being exchanged at a port for trucks, pharmaceuticals or telecommunications equipment. Financial claims still exist, accounts are still maintained and Chinese financial institutions may still participate in final payments.

What has changed is the geography of settlement.

Iran sells oil abroad, but instead of repatriating the proceeds, it converts part of those proceeds into purchasing power inside China.

That distinction explains why trade could continue even when conventional international banking relationships with Iran became exceptionally difficult.

Financial sanctions made the bank account a strategic chokepoint

The architecture developed in response to a specific problem.

Foreign banks dealing with Iran can face U.S. sanctions exposure, particularly when transactions involve designated Iranian financial institutions, the Central Bank of Iran or the National Iranian Oil Company.

The Central Bank of Iran was sanctioned under U.S. counterterrorism authorities in September 2019. U.S. regulations also provide for sanctions against foreign financial institutions that knowingly facilitate significant transactions with designated Iranian institutions.

China had already experienced the consequences of this system.

In 2012, the U.S. Treasury sanctioned Bank of Kunlun, a Chinese bank that had continued processing transactions for sanctioned Iranian banks. Treasury said Kunlun had provided hundreds of millions of dollars in services, including maintaining accounts, transferring payments and paying letters of credit. In early 2012 alone, Treasury said the bank transferred approximately $100 million for accounts belonging to Bank Tejarat.

The penalty effectively cut Bank of Kunlun off from direct access to the U.S. financial system.

The lesson was clear.

A bank could facilitate Iranian trade, but doing so openly could place its access to the much larger international financial system at risk.

The later Iran-China architecture appears designed around that constraint.

Oil provided the financial base

China is not simply another Iranian trading partner.

It is the dominant destination for Iranian crude.

Kpler data cited by Reuters show that China received more than 80 percent of Iran’s shipped oil in 2025, averaging approximately 1.4 million barrels per day. U.S. government researchers using tanker and market data have produced an even higher estimate, putting China’s share at roughly 90 percent.

The scale is difficult to see in official customs statistics.

China officially reported only $9.96 billion in total bilateral trade with Iran in 2025. The U.S.-China Economic and Security Review Commission estimated that another $31.2 billion of Iranian crude reached China without appearing as Iranian oil in those figures.

On that estimate, reported bilateral trade captured less than one-quarter of the actual economic relationship once unreported crude was included.

This discrepancy reflects the structure of the oil trade itself.

Tanker-tracking data show Iranian crude moving through ship-to-ship transfers and other opaque shipping practices. Analysts have also identified large discrepancies between Chinese customs records and physical oil flows. Columbia University’s Center on Global Energy Policy notes that many Iranian and Venezuelan barrels entering China are relabeled as Malaysian crude. In 2025, China recorded roughly 1.3 million barrels per day of crude imports from Malaysia, even though Malaysia produced only about 535,000 barrels per day in 2024.

Reuters subsequently reported unusually large Chinese imports recorded as Indonesian crude and cited traders who said some of those volumes were rebranded Iranian oil transshipped near Malaysia.

The buyer base is similarly specialized.

China’s independent refiners, commonly called teapots and concentrated heavily in Shandong province, became the principal consumers of sanctioned Iranian crude. The U.S. Treasury said in April 2026 that these independent refiners accounted for the majority of China’s Iranian oil purchases.

The arrangement therefore developed an unusually segmented structure:

Iran supplied discounted crude.

Specialized refiners and trading intermediaries handled much of the purchasing.

Shadow-fleet tankers and transshipment networks obscured physical origin.

Separate financial arrangements handled settlement.

The result was not one mechanism for evading sanctions, but several connected mechanisms operating at different stages of the same trade.

The first layer converted oil into infrastructure

The clearest version of the system was reported by the Wall Street Journal in October 2025.

Under that arrangement, an Iranian-controlled seller affiliated with Naftiran Intertrade Company reportedly booked crude sales to a Chinese buyer connected to Zhuhai Zhenrong, a Chinese state-owned oil trader that the United States sanctioned in 2019 for purchasing Iranian crude.

The Chinese buyer did not simply wire the purchase price to Iran.

Instead, it deposited money into a little-known China-based mechanism referred to as ChuXin.

ChuXin then directed funds toward Chinese contractors working on infrastructure projects inside Iran.

According to Western officials cited by the Wall Street Journal, as much as $8.4 billion may have moved through this oil-for-infrastructure conduit during 2024.

Reuters’ later investigation broadly confirmed the architecture while adding new details.

Three sources told Reuters that roughly 70 percent of Iranian oil proceeds handled through ChuXin were allocated to infrastructure projects.

This means the payment loop could operate without Iran first receiving dollars, euros or even renminbi into a conventional Iranian bank account.

The oil generated the claim.

The claim generated financing.

The financing paid Chinese companies.

Iran ultimately received infrastructure.

Sinosure reduced the risk for Chinese contractors

Another institution appears in the infrastructure side of the arrangement: China Export & Credit Insurance Corporation, or SINOSURE.

SINOSURE is not an obscure private insurer.

Its own corporate records describe it as a state-funded, policy-oriented insurance company created to support Chinese foreign trade, overseas contracting and investment. By the end of 2025, it said it had supported more than $10 trillion in domestic and international trade and overseas investment since its creation.

The Wall Street Journal reported that SINOSURE provided insurance support for infrastructure projects financed through the Iran oil arrangement.

Its role helps explain how Chinese engineering companies could participate without accepting the entire political and payment risk themselves.

The oil proceeds provided financing.

ChuXin provided the settlement channel.

Chinese contractors executed the projects.

SINOSURE helped insure the commercial risk.

Instead of trying to reconnect Iran directly to conventional international finance, the arrangement created a partially closed commercial loop inside China.

The second layer converted oil into goods

Reuters’ September 2026 investigation revealed another component that had not previously been publicly described.

The roughly 30 percent of ChuXin-handled proceeds not allocated to infrastructure were reportedly directed into accounts belonging to a special-purpose vehicle, or SPV, used to pay suppliers of goods to Iran.

Two senior Iranian sources confirmed the SPV’s existence to Reuters.

According to all five sources interviewed by the news agency, the funds were managed through two entities:

one acting on behalf of China’s Ministry of Commerce;

and another linked to the Central Bank of Iran.

When an Iranian importer was authorized by the central bank to use the funds, the Iran-linked entity would notify its Chinese counterpart. Payment could then be made to the Chinese supplier.

This changes the transaction from:

Iranian importer → Iranian bank → international bank → Chinese bank → Chinese exporter

into something closer to:

Iranian oil → Chinese buyer → China-based financial pool → authorized Iranian purchasing claim → Chinese supplier

The supplier receives payment in China.

The importer receives the goods in Iran.

The Iranian oil revenue does not need to travel back through the conventional international banking system first.

Reuters estimated that $2 billion to $2.5 billion flowed through this SPV during the preceding year.

The mechanism appears to have started with humanitarian goods

The system was not initially described as a military procurement channel.

Sources told Reuters that the mechanism had existed since at least 2021 and was first used to supply Iran with medicines and COVID-19 vaccines.

It later expanded to vehicles and communications equipment.

That timing overlaps with the broader institutionalization of China-Iran economic cooperation.

The two governments signed their long-term comprehensive cooperation plan in 2021, and in January 2022 officially announced the start of its implementation. China’s Foreign Ministry said cooperation would cover energy, infrastructure, production capacity, technology, agriculture and health care, among other areas.

The payment mechanism should not automatically be treated as synonymous with that agreement. Public evidence does not establish that the 25-year plan itself created ChuXin or the SPV.

But the two developed inside the same broader effort to sustain economic relations despite sanctions.

Military procurement raises a separate question

Reuters reported that the SPV had also been used at least once during the previous year in connection with contracts worth millions of dollars for air-defense equipment.

That claim requires more caution than the civilian trade findings.

The sources did not identify the manufacturers or describe the transactions in sufficient detail, and Reuters said it could not independently verify that the military transactions occurred.

The distinction matters.

There is direct reporting on the payment architecture itself from multiple sources familiar with the system.

There is less publicly verifiable information about exactly which military goods may have moved through it.

China’s Foreign Ministry told Reuters that it was not familiar with the arrangement described by the news agency. Iran’s UN missions, its central bank, China’s Commerce Ministry, NIOC and Zhuhai Zhenrong did not provide substantive confirmation of their reported roles.

The system is therefore best understood as a reported financial architecture whose broad structure has now been described by both Reuters and the Wall Street Journal, while several institutional and transaction-level details remain opaque.

ChuXin may not be a conventional institution at all

One of the most unusual elements is ChuXin itself.

Reuters searched Chinese corporate registries but found no financial institution registered under that name.

It also found no public records for the entities reportedly acting on behalf of China’s Commerce Ministry and Iran’s central bank.

One source told Reuters that ChuXin might effectively exist only as a ledger or spreadsheet rather than as a normal financial institution.

This is significant because it changes what investigators should look for.

A sanctions-evasion mechanism does not necessarily require a new bank with a headquarters, balance sheet and public corporate identity.

It can instead be an accounting arrangement linking existing companies, accounts and institutions.

The financial infrastructure can therefore be organizational rather than institutional.

The system does not eliminate banks

This is the most important qualification to the phrase “trade without banks.”

Reuters did not report that banks disappear from the system.

It reported that Iran can purchase Chinese goods without paying the Chinese companies directly through international banking channels.

ChuXin reportedly sends money to exporters and infrastructure companies, likely through other Chinese financial institutions.

The innovation is therefore not bankless commerce in the literal sense.

It is the removal of the most dangerous banking step:

a direct cross-border financial relationship connecting the Chinese supplier to sanctioned Iranian counterparties.

The Chinese manufacturer can be paid domestically.

The Iranian purchaser can receive goods using credit derived from oil already sold in China.

The politically sensitive financial relationship is moved further away from the ordinary supplier.

Reuters said it found no indication that the Chinese manufacturers supplying civilian goods had themselves violated sanctions.

China is isolating Iran trade from the parts of its economy it values more

The structure also reflects an important asymmetry in China’s relationship with Iran.

Iran matters to China as an energy supplier and geopolitical partner.

But Iran is not economically important enough for Beijing to risk unrestricted exposure of its major banks and companies to secondary sanctions.

In 2025, estimated Iran-China trade including unreported crude was approximately $41.2 billion, according to the U.S.-China Economic and Security Review Commission.

China’s two-way trade with Saudi Arabia was approximately $108 billion.

Its trade with the United Arab Emirates was also approximately $108 billion.

That creates a specific incentive.

China benefits from maintaining access to Iranian oil and Iranian markets.

It also benefits from preventing that relationship from contaminating institutions with much larger international exposure.

The resulting architecture does not integrate Iran into China’s mainstream financial system.

It compartmentalizes Iran.

Specialized buyers purchase the oil.

Opaque intermediaries handle parts of settlement.

Credits remain inside China.

Chinese suppliers receive domestic payment.

Major financial institutions are kept as distant as possible from the most sanction-sensitive parts of the transaction.

That is a different model from conventional financial integration.

Iran gains resilience, but loses financial flexibility

For Iran, the arrangement solves one problem while creating another.

It allows sanctioned oil revenue to retain economic value.

But money trapped inside a China-based purchasing system is not equivalent to unrestricted foreign-exchange reserves.

Iran cannot necessarily take every dollar earned from oil and spend it wherever it wants.

The value is partly constrained by the architecture through which it is accessed.

Some proceeds finance Chinese infrastructure contractors.

Some become credits for Chinese goods.

Other Iranian shadow-banking mechanisms are still required when Tehran wants to convert renminbi earnings into currencies usable elsewhere.

The U.S. Treasury said in May 2026 that Iranian exchange houses play a major role precisely because Iranian oil is primarily settled in Chinese yuan and those proceeds must then be converted into other currencies. Treasury described networks processing billions of dollars annually through foreign front-company bank accounts.

The China mechanism therefore reduces Iran’s dependence on international banking for bilateral trade.

It does not give Iran unrestricted access to global finance.

Sanctions changed the architecture of trade rather than ending it

This helps explain an apparent contradiction.

Sanctions made Iranian oil and banking transactions exceptionally difficult.

Yet Iranian exports to China remained large for years.

The reason was not that sanctions ceased to impose costs.

Iranian crude often had to be sold at discounts.

Shipping required shadow-fleet vessels, transshipment and opaque documentation.

Purchasers became concentrated among a narrower group of Chinese refiners.

Financial settlement required increasingly specialized structures.

Washington responded repeatedly by sanctioning Chinese refiners, terminals, shipping companies and intermediaries. In 2025 and 2026, Treasury targeted multiple independent Chinese refiners that it said had purchased hundreds of millions or billions of dollars of Iranian petroleum.

But each additional restriction also encouraged the trade to reorganize around actors less exposed to the institutions applying the sanctions.

The transaction became more expensive, more opaque and more concentrated.

It did not disappear.

The war exposed the one component finance cannot relocate

The current war has revealed the system’s most important limitation.

Iran and China found ways to move value without moving the corresponding money through Iran.

They cannot move crude oil without moving crude oil.

Since the United States reinstated its naval blockade on July 14, 2026, no fresh Iranian crude cargo had successfully transited the Strait of Hormuz to China by September 1, according to Kpler, Vortexa and TankerTrackers.com.

Iranian crude and condensate loadings fell to approximately 220,000 to 255,000 barrels per day in August, down from roughly 740,000 barrels per day in July and around 2 million barrels per day in March.

TankerTrackers.com estimated that 29 tankers carrying approximately 36.1 million barrels were trapped inside the Strait.

Meanwhile, Iran’s total crude afloat fell from about 135 million barrels at the end of July to 107 million barrels by late August as inventories outside the blockade were consumed without being fully replenished.

The financial mechanism could continue allocating existing proceeds.

Chinese buyers could continue purchasing barrels already stored in Asia.

But the underlying system eventually requires new Iranian oil to reach China.

This is where financial engineering reaches a physical limit.

Official trade data show the same disruption

China’s customs figures also show a sharp contraction in registered bilateral trade during the war.

During the first seven months of 2026:

• Chinese exports to Iran fell from $4.026 billion to $1.917 billion, a decline of about 52 percent.
• Chinese imports officially recorded from Iran fell from $1.97 billion to $663 million, a decline of about 66 percent.
• Total officially recorded bilateral trade fell from approximately $5.996 billion to $2.58 billion, a decline of roughly 57 percent.

In July alone, China’s recorded imports from Iran were just $62 million, down from $247 million a year earlier.

These figures should not be mistaken for the total Iran-China economic relationship because Chinese customs statistics have historically excluded much of the Iranian crude that arrives through indirect channels.

But the direction is clear.

The war disrupted not only finance, but the physical movement of goods and energy on which the financial system ultimately depends.

What the arrangement reveals about modern sanctions

The Iran-China mechanism illustrates a broader principle.

Financial sanctions are most powerful when trade requires access to institutions controlled by, or dependent on, the sanctioning state.

If a transaction requires dollar clearing, correspondent banking, major international insurers and globally exposed commercial banks, exclusion from those systems can create an effective chokepoint.

But trade can be reorganized.

The buyer can retain the seller’s proceeds inside its own jurisdiction.

The proceeds can become credits instead of repatriated cash.

Domestic firms can be paid domestically.

Special-purpose vehicles can separate the importer from the exporter.

State-backed insurance can reduce contractor risk.

Shadow fleets and relabeling can obscure the physical origin of commodities.

None of these mechanisms makes sanctions costless.

They create discounts, opacity, dependency and transaction costs.

But they can prevent financial isolation from becoming commercial isolation.

The harder problem arises when the commodity itself can no longer move.

Conclusion: the money never needed to reach Iran

The most important feature of the Iran-China system is not that it eliminated money.

It changed where money needed to go.

Iranian crude created revenue in China.

A large part of that revenue could finance Chinese-built infrastructure.

Another part could become purchasing credit for Iranian importers.

Chinese suppliers could receive payment without establishing a conventional financial relationship with an Iranian buyer.

In the reported SPV alone, $2 billion to $2.5 billion moved through this structure in one year.

In the broader infrastructure channel, officials previously estimated that as much as $8.4 billion may have moved through the system in 2024.

The arrangement demonstrates why isolating a country from banks is not necessarily the same as isolating it from trade.

But the war has demonstrated the opposite principle as well.

A financial payment can be rerouted.

An accounting claim can remain offshore.

A bank can be replaced by an intermediary, an SPV or a domestic settlement mechanism.

A barrel of oil still has to cross the sea.

The system did not remove finance from Iran-China trade.

It relocated the finance to China.

And once that happened, the most important remaining chokepoint was no longer the bank.

It was the route connecting the oil field to the buyer.

Sources

Reuters, September 10, 2026
John Irish, Parisa Hafezi and Joe Cash, investigation into the China-based barter-like mechanism, ChuXin, the newly reported SPV, estimated $2 billion to $2.5 billion annual flow, allocation of oil proceeds, civilian imports and reported air-defense contracts.

Reuters, September 1, 2026
Ahmad Ghaddar, Enes Tunagur and Robert Harvey, tanker-tracking analysis of Iranian exports following reinstatement of the U.S. naval blockade, including Hormuz transit, loading and floating-storage data.

The Wall Street Journal, October 5, 2025
Investigation into the ChuXin oil-for-infrastructure mechanism, Zhuhai Zhenrong-linked purchasing structure, SINOSURE-backed infrastructure and the estimate of up to $8.4 billion passing through the conduit in 2024.

China Export & Credit Insurance Corporation, 2025 Annual Report and Corporate Profile
Official description of SINOSURE as a state-funded policy-oriented insurer and data on more than $10 trillion in cumulative supported trade and investment.

Ministry of Foreign Affairs of the People’s Republic of China
Official announcement on implementation of the China-Iran comprehensive cooperation plan and its coverage of energy, infrastructure, production capacity, technology and health cooperation.

U.S.-China Economic and Security Review Commission, March 2026
China-Iran trade, unreported Iranian crude flows, estimates of China’s share of Iranian oil exports and comparison with China’s commercial relationships with Saudi Arabia and the UAE.

Center on Global Energy Policy, Columbia University
Analysis of discrepancies between China’s official crude-import statistics and physical flows of sanctioned Iranian oil, including relabeling through Malaysia.

U.S. Department of the Treasury, July 2012
Bank of Kunlun sanctions and details of financial services provided to sanctioned Iranian banks.

U.S. Department of the Treasury, September 2019
Designation of the Central Bank of Iran under U.S. counterterrorism authorities.

U.S. Department of the Treasury, 2025-2026
Actions against Chinese independent refineries, ports, shipping networks and Iranian shadow-banking structures involved in Iranian petroleum sales and financial settlement.

General Administration of Customs of China data, reported August 2026
January-July 2026 registered bilateral trade between China and Iran.