The Shadow Fleet Strategy: How China Sustains Iran Oil Imports Despite Sanctions

They're shaking hands, but the fists remain clenched. Despite a fresh wave of U.S. sanctions targeting nations doing business with Iran, China's oil flow hasn't skipped a beat. In 2025, China imported a staggering 1.38 million barrels of Iranian oil per day—accounting for 13.4% of its total imports. According to The Diplomat, Beijing's well-honed evasion schemes make it largely unbothered by Washington's tightening grip.

China Iran Oil Sanctions Evasion via the 'Ghost Armada'

The backbone of this illicit trade is a massive shadow fleet that reportedly accounts for 17% of global seaborne tankers. These vessels operate off the radar, often disabling their AIS signals and performing Ship-to-Ship (STS) transfers near the Malaysian coast. Satellite imagery shows that the number of these side-by-side transfers doubled between 2020 and the end of 2024. Once transferred, the oil is rebranded as originating from Oman or Malaysia to mask its true source.

Teapot Refineries and Barter-Style Payments

The crude eventually lands at teapot refineries—small, non-state refiners that meet one-fifth of China’s oil needs. Because they don't have international exposure, they're less vulnerable to U.S. scrutiny. Payment is equally covert; instead of cash, China uses barter-style mechanisms. Funds for oil are deposited into unregistered vehicles and used to pay Chinese contractors building infrastructure in Iran. This system saves China roughly $8-10 per barrel while bypassing the global financial system.