China Bypasses U.S. Sanctions to Remain Top Buyer of Iranian Oil — Here’s How, and Why That’s Unlikely to Change

For years, China has quietly remained Iran’s largest oil customer, continuing to import heavily discounted crude despite sweeping U.S. sanctions. Analysts say this trade persists largely due to a shadow shipping network and yuan-based payment systems that effectively bypass the U.S. dollar and global financial restrictions.

Chinese Imports of Iranian Oil Continue to Surge

Official customs data from China has not recorded any Iranian oil imports since July 2022. However, vessel tracking data from analytics firm Kpler reveals that imports have steadily increased, nearly doubling to 17.8 million barrels per day (mbd) in 2024, compared to 2022 levels.

In the first five months of 2025, imports remained strong at around 6.8 mbd, holding steady year-over-year.

According to the U.S. Energy Information Administration (EIA), nearly 90% of Iran’s crude exports are still going to China, making it the top buyer by a wide margin.

U.S. Sanctions Fall Short of Disrupting Trade

Despite some of the most extensive sanctions the U.S. has imposed—targeting Iran’s oil sector to curb its nuclear program and funding of groups like Hamas and Hezbollah—the actual impact on oil flows has been limited.

“The physical market has not seen any long-term impact on the flow of Iranian oil,” said Brian Leisen, global energy strategist at RBC Capital Markets.

Iran’s petroleum and petrochemical exports generated an estimated $70 billion in 2023, according to a U.S. Congressional report.

Discounted Crude Attracts Smaller Chinese Refineries

Iranian crude is often priced lower than Persian Gulf or Russian oil, drawing demand from independent Chinese refineries, or "teapots." For example, Iran Light crude traded at $6–$7 cheaper per barrel than UAE’s Upper Zakum, a non-sanctioned grade of similar quality, according to Kpler’s Muyu Xu.

Teapots typically purchase crude on a delivered basis, meaning Iranian sellers arrange shipping, minimizing risk for Chinese buyers.

Shadow Shipping and “Spoofing” Obscure Oil Origins

Much of this oil doesn’t travel directly from Iran to China. Instead, shipments often involve multiple ship-to-ship (STS) transfers in regions like the Middle East Gulf or the Strait of Malacca. These allow sanctioned oil to be transferred onto non-sanctioned vessels, masking its origin.

Tactics like “spoofing”—where tankers transmit false location data—are commonly used to further obscure the oil’s path.

Yuan-Based Payments Evade Dollar Restrictions

Payments are usually made in Chinese yuan (renminbi) through small, U.S.-sanctioned banks, keeping transactions away from the SWIFT system and avoiding exposure to the U.S. dollar.

"Because there is no dollar exposure, exclusion from SWIFT doesn’t seriously disrupt the oil flows," Leisen added.

Malaysia Becomes a Key Transshipment Hub

The eastern coast of Peninsular Malaysia has emerged as a major hub for ship-to-ship transfers of Iranian oil, according to Bridget Diakun, senior analyst at Lloyd’s List Intelligence.

“I’ve seen a lot of tankers spoofing their location off Malaysia, taking added precautions to hide STS activity and obfuscate cargo origin,” she told CNBC.

In 2024, China’s crude imports from Malaysia jumped to 1.4 million barrels/day, well above Malaysia’s domestic production of 0.6 million barrels/day, raising suspicions of re-labeled Iranian crude.

Trump’s Surprise Remarks Stir Uncertainty

This week, Donald Trump surprised markets with a Truth Social post suggesting China would be allowed to continue buying Iranian oil, contradicting earlier hardline positions. U.S. crude prices fell 6% following the statement.

A White House official later clarified that Trump’s comments do not reflect a change in U.S. sanctions policy.

Muyu Xu of Kpler said the comment could be a “calculated trade-off,” possibly aimed at encouraging Iran to maintain a ceasefire and re-engage in nuclear negotiations, while also signaling goodwill toward China.

“While it’s too soon to say if this means future waivers, a slower pace of new sanctions could further enable this trade,” she said.

Despite political uncertainty, analysts expect Iranian oil exports to China to continue, especially to the independent refineries that dominate this trade.

Gain a competitive edge with up-to-date market intelligence from InfoFinance – follow us for the latest insights.