US sanctions are intended to make it practically impossible to pay Iran for oil. But China, Iran's biggest buyer, has evaded the controls with a solution involving a workaround that allows billions of dollars' worth of crude purchases to continue to flow. Beijing employs a barter-like mechanism that swaps Iranian crude for Chinese-constructed infrastructure, evading the global banking system where sanctions bite, according to Western officials cited by the Wall Street Journal.
This deal has deepened economic ties between two of Washington's key competitors. Official estimates in 2024 alone put up to $8.4 billion of oil revenues from this secret pipeline into financing Chinese projects within Iran. That's part of an estimated $43 billion in exports from Iran, nearly 90% of which went to China.
The secret mechanism
At the heart of the system are two Chinese entities: Sinosure, a gargantuan state-owned export credit insurer, and a mysterious financial intermediary called Chuxin that does not appear on any official list of Chinese finance firms.
The arrangement works as follows: Iranian oil is sold to a Chinese buyer, typically a state-owned Zhuhai Zhenrong-affiliated trader. The buyer commits hundreds of millions of dollars in monthly payments in Chuxin. Instead of being paid to Iran, the funds are being channelled towards Chinese builders building infrastructure in Iran. Sinosure insures these projects, making the arrangement viable despite the risks.
Oil masquerading in transit
Iranian crude rarely arrives in China openly. To cover up its origin, shipments typically involve ship-to-ship transfers at sea, blending with oil from other nations before reaching Chinese ports. That permits Beijing's customs agents to avoid formally declaring Iranian imports, which have not been registered since 2023.
Despite secrecy, Iranian oil poured in consistently, enriching Tehran's sanctions-weakened economy and helping China to lock in discounted crude.
Strategic benefits for both sides
For Iran, the deal provides both finance and infrastructure at a time when global sanctions limit access to foreign banks. Chinese firms have built or improved key projects, from airports to refineries, under the deal.
For Beijing, the deal commits the country to a strategic partner in the Middle East and gains access to a key source of energy at cut-rate prices. Politically, it also shores up Beijing's defiance of what it considers "illegal unilateral sanctions" by Washington.
The partnership has been put into the context of a 25-year strategic cooperation pact signed in 2021, where China agreed to invest tens of billions of dollars in Iran's infrastructure.
Global response and threats
Western officials perceive the system as a threat to US sanctions policy per se. Washington has so far targeted Chinese small companies and individuals with Iranian links, but has avoided blacklisting major state actors like Sinosure for fear of ratcheting up tensions against Beijing.
However, the mechanism shows how the great powers can neutralize the effect of US sanctions by offering alternative channels of finance. For Tehran, it reduces isolation. For Beijing, it enhances influence in a region of the world where the US has long dominated.
The deal also has security implications. With Iran economically reliant on China, Beijing has influence over how Tehran distributes its oil wealth, even as the US and its allies seek to limit Iran's nuclear and regional aspirations.
The bottom line
China's oil-for-infrastructure equation with Iran is more than a shrewd economic detour. It is a political partnership that resists the US sanctions reach, aligns Iran more tightly with Beijing, and underscores an emerging global pattern: where Washington imposes sanctions, its rivals are building substitute economic networks.
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