How China Funds Iran: Oil, Sanctions Evasion, and the Shadow Banking Network

China and Iran have built a broad strategic partnership over several decades, encompassing economic, diplomatic, and security cooperation, much of which runs counter to U.S. foreign policy interests.

The U.S.-China Economic and Security Review Commission has identified the two countries as part of an informal “Axis of Autocracy” alongside Russia and North Korea, a grouping united by a shared interest in challenging U.S. global leadership and reshaping the international order to favor authoritarian governance.

China views Iran as a partner in balancing U.S. influence in the Middle East and as a supplier of discounted energy. Iran depends on China for export revenue and diplomatic cover. The relationship is asymmetric: Iran needs China far more than China needs Iran. Beijing maintains competing relationships with Saudi Arabia and the UAE, each of which accounted for $108 billion in two-way trade with China in 2025, compared to $41.2 billion with Iran, including unreported oil imports, giving Beijing reason to limit how openly it supports Tehran.

The formal foundation of the relationship is a 25-year comprehensive strategic partnership agreement signed in 2021, covering economic, security, and technological cooperation. China pledged up to $400 billion in investment over the life of the agreement, though little has been actualized due to Chinese companies’ reluctance to risk sanctions exposure. A Wall Street Journal investigation in October 2025 reported that a Chinese state-owned enterprise, Sinosure, may have secretly facilitated up to $8.4 billion in investment in 2024 through an oil-for-infrastructure arrangement.

China is Iran’s largest trading partner and the primary buyer of its oil, purchasing roughly 90 percent of Iran’s exported crude, often at a discount of $8 to $10 per barrel below the global benchmark. In 2025, China imported approximately 1.4 million barrels per day of Iranian oil, representing about 12 percent of its total crude imports.

Chinese customs authorities do not officially report these imports; instead, they falsely attribute the oil’s origin to Malaysia, Oman, and the UAE. The true value of Iranian crude exports to China in 2025 was approximately $31.2 billion, comprising more than 75 percent of total bilateral trade when added to the $9.96 billion in officially reported trade.

Oil revenue from China accounts for roughly 45 percent of Iran’s government budget. That revenue funds Iran’s regional activities, including support for Hezbollah, Hamas, Palestinian Islamic Jihad, the Houthis, and other Iran-aligned militia groups.

Iran’s oil reaches China through a shadow fleet of aging tankers that obscure their activity by sailing under foreign flags, disabling tracking transponders, spoofing their GPS locations, and conducting ship-to-ship transfers at sea. The oil is then processed by a network of independent “teapot” refineries in China that operate largely outside the international financial system.

Payment is facilitated through front companies and small regional banks using false addresses and fake invoices, often routed through Hong Kong, with proceeds laundered into the global financial system through the financial arms of Iranian oil companies, local money exchanges, and front companies affiliated with Iran’s Ministry of Defense. Offshore accounts under Chinese jurisdiction are used in part to finance the Islamic Revolutionary Guards Corps, Hezbollah, Hamas, Palestinian Islamic Jihad, the Houthis, and other Iran-aligned groups.

As of November 2025, 366 China- and Hong Kong-based entities were on the U.S. Treasury’s Specially Designated Nationals list for Iran-related sanctions violations. More than 100 Chinese and Hong Kong entities have been added to the Commerce Department’s Entity List for assisting Iran’s export control evasion over the past eight years.

UN sanctions on Iran, lifted under the 2015 Joint Comprehensive Plan of Action, were reimposed in September 2025 after France, Germany, and the United Kingdom invoked a snapback mechanism citing Iran’s failure to meet its commitments. China, which had been a party to the JCPOA, opposed the snapback.

China has also supported Iran’s integration into alternative multilateral institutions, backing its entry into the Shanghai Cooperation Organization in 2023 and BRICS in 2024. These memberships bring Iran into closer alignment with China and Russia and help insulate it from Western pressure. Following U.S. and Israeli strikes on Iran beginning in late February 2026, BRICS issued a statement expressing concern but took no position on the strikes, reflecting the limits of the group’s cohesion.

China’s financial support for Iran is reinforced by its diplomatic protection at the United Nations. When France, Germany, and the United Kingdom triggered the JCPOA snapback mechanism in August 2025, citing Iran’s sustained non-performance of its nuclear commitments, China and Russia blocked the reimposition of UN sanctions, arguing that the snapback had not been legally activated and that the Security Council no longer had a mandate to consider Iran’s nuclear file.

After the sanctions were nonetheless reimposed on September 27, 2025, Beijing continued to obstruct enforcement. In March 2026, China and Russia blocked the U.S.-drafted Security Council programme of work because it included a briefing on the 1737 Sanctions Committee, whose authority both countries refuse to recognize.

This diplomatic cover renders multilateral enforcement mechanisms functionally inoperable, leaving unilateral U.S. action as the primary tool for constraining the relationship. The tens of billions of dollars in annual oil revenue that China provides fund not only Iran’s government but its proxy network, including Hamas, the Houthis, and Hezbollah, which are destabilizing the Middle East.

Severing or seriously disrupting that financial and technological lifeline through sanctions pressure on Chinese banks, refineries, and shell companies, and through enforcement action against the shadow fleet.

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