Iran's Secret Trade Mechanism Fuels China's Access to Discounted Oil

Iran has been using a secret trade mechanism to bypass US sanctions on its oil sales and buy billions of dollars' worth of goods from China, including military gear. The arrangement, which has been in place since at least 2021, involves exchanging Iranian oil for credits that can be used to import Chinese goods.

The mechanism is run through a special vehicle (SPV) that manages the funds allocated to companies supplying goods to Iran. The SPV is managed by two entities: a firm acting on behalf of China's Ministry of Commerce and one linked to Iran's central bank.

Roughly 70% of the Iranian oil proceeds handled by ChuXin, a Chinese financial entity, are allocated to infrastructure projects, while the rest go into accounts belonging to the SPV. The total value of transactions through this mechanism is estimated to be between $2 billion and $2.5 billion over the last year.

China has consistently denied knowledge of the arrangement, stating that it opposes unilateral sanctions that have no basis in international law. However, analysts believe that Beijing is using such arrangements to push back against US pressure and show that it cannot be coerced with the threat of secondary sanctions.