Since the U.S. and Israel launched strikes against Iran, China’s support for Iran has taken a multi-pronged strategic form, including diplomacy, finance, technology, and influence operations. This report focuses on how China uses a “shadow fleet” to help transport Iranian oil and dual-use goods, and uses “shadow banking” settlements to bypass U.S. sanctions, thereby sustaining Iran’s economy and war machine.
On April 19, the United States seized the Iranian-flagged cargo ship Touska in the Gulf of Oman. The U.S. military said the vessel ignored American warnings for six hours and attempted to break through a blockade imposed on Iranian ports.
In discussions with CNBC, U.S. President Donald Trump revealed on Tuesday, April 21 that the ship may have been carrying “not-so-good things,” possibly a “gift” from China. The “not-so-good things” likely refer to U.S.-sanctioned dual-use goods. The U.S. classifies microelectronics, navigation systems, attack drone motors, and ballistic missile solid propellant chemical precursors as dual-use materials.
The exact cargo aboard the Touska has not been disclosed, and it is not confirmed that the goods originated directly from China. However, shipping tracking data shows the vessel has been shuttling between Chinese and Iranian ports for most of the past year.
The Touska belongs to the Islamic Republic of Iran Shipping Lines (IRISL), which, along with the vessel, was sanctioned by the U.S. in 2019 and 2020. The U.S. government has described IRISL as Iran’s “preferred shipping company” for procurement networks and missile-related goods.
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On April 13, after the U.S. officially blocked all vessels entering and leaving Iranian ports, a U.S.-sanctioned Chinese-owned oil tanker, the Rich Starry (Full Star), was reported to be the first cargo ship attempting to leave the Persian Gulf after passing through the Strait of Hormuz, but it was ultimately forced to turn back.
The Rich Starry is a 188-meter medium-sized oil tanker. In 2023, it was sanctioned by Washington, along with its parent company Shanghai Xuanrun Shipping Co., Ltd., for allegedly assisting Iran in transporting crude oil and engaging in energy trade.
Energy and sensitive goods trade with Iran through a ‘shadow fleet’
The Touska and Rich Starry are part of what the U.S. and Western countries call Iran’s “shadow fleet.” This refers to a covert shipping network built by Iran to evade U.S. and international sanctions, allowing continued oil exports and the transport of prohibited goods. According to U.S. Central Command, as of April 2026, the U.S. military is expanding global efforts to disrupt and block this fleet. U.S. Central Command said on Monday it has so far stopped 27 ships from sailing to or from Iran.
During his first term, President Trump implemented a “maximum pressure” policy aimed at reducing Iran’s oil exports and cutting off its main source of revenue, seeking to isolate Tehran from the global oil market and weaken its economy. However, China has ignored U.S. sanctions and continued trading oil and other goods with Iran.
According to Reuters, U.S. Treasury Secretary Scott Bessent said on April 15 that China purchases 90 percent of Iran’s oil, accounting for about 8 percent of China’s energy demand. However, he added that he believes China should stop further purchases due to the U.S. blockade of the Strait of Hormuz.
A March 31 report by the U.S. House Select Committee on Strategic Competition between the United States and the Chinese Communist Party titled Crude Intentions: How China Became the Clearing Market for Sanctioned Oil stated that China continues to absorb sanctioned crude oil from Iran and other countries primarily through “shadow fleet” transportation.
The report also warned that “shadow fleet” vessels may not only transport energy, but also sensitive equipment, personnel, and even weapons, and may be used in broader “gray zone” activities.
A November 2025 report by the U.S.-China Economic and Security Review Commission titled China’s Facilitation of Sanctions and Export Control Evasion stated that these shadow fleet tankers conceal their activities through opaque ownership structures, flag-hopping, disabling Automatic Identification Systems (AIS), and risky ship-to-ship transfers at sea. Between 2020 and 2025, Iran’s shadow fleet grew from an estimated 70 vessels to nearly 550.
Absorbing Iranian oil through ‘teapot’ refineries
The House Select Committee report states that nearly two-thirds of Iran’s crude oil imports into China are unloaded in Shandong ports. Shandong hosts a large number of private Chinese “teapot” refineries (small local refiners). Due to concerns over Washington’s sanctions, after major state-owned energy companies withdrew from Iranian crude markets, these teapot refineries became the primary buyers of Iranian oil.
The role of these refineries is reflected in U.S. Treasury sanctions against them.
As of October 2025, the U.S. had sanctioned at least four Chinese teapot refineries and crude oil terminal operators. For example, in March 2025, Shandong Shouguang Luqing Petrochemical Co., Ltd. was sanctioned for allegedly purchasing about $500 million worth of Iranian oil and cooperating with a shadow fleet linked to Yemen’s Houthi forces.
The U.S. says these refineries purchase crude oil from front companies backed by Iran’s Islamic Revolutionary Guard Corps (IRGC), thereby financing Iran and undermining stability in the Middle East. According to U.S. sanctions documents, these firms also conceal transactions through false invoices and mislabeled cargo.
A Wall Street Journal report on April 7 said China has increased import quotas for teapot refineries in recent years, from 140 million tons in 2018 to 257 million tons currently.
Financial flows bypassing sanctions through small banks
Alongside large-scale oil purchases, Beijing and Tehran have cooperated to build one of the world’s largest sanction-evasion financial networks. A March 16 fact sheet from the USCC stated that “mainland China and Hong Kong play a key role in financing sanctioned Iranian activities.”
The report says Iran uses a complex network of financial institutions to launder most of its yuan-denominated oil revenues into the global financial system. Key nodes in this shadow banking system include the financial arms of Iranian oil companies, local currency exchange institutions, and front companies abroad operated by Iran’s Ministry of Defense and Logistics. Many of these shell companies are based in China or Hong Kong. Iran’s defense and logistics ministry can directly access these overseas accounts and use the funds to finance the Islamic Revolutionary Guard Corps, Hezbollah, Hamas, Palestinian Islamic Jihad, the Houthis, and other Iran-aligned militias.
According to Bloomberg, U.S. Treasury Secretary Scott Bessent said on April 15 that the Treasury Department had sent warning letters to two Chinese banks, stating they would face secondary sanctions if they continued business with Iran. He said he told the banks: “If we can prove Iranian funds are flowing through your accounts, we will be happy to impose secondary sanctions.”
In 2012, the U.S. sanctioned Kunlun Bank of China for allegedly providing financial services—including transfers and letters of credit—to multiple Iranian banks worth hundreds of millions of dollars. The move cut Kunlun Bank off from the U.S. financial system but also turned it into an important RMB settlement channel between China and Iran.
The USCC report notes that China uses already-sanctioned banks like Kunlun Bank, as well as smaller or provincial banks, to handle payments because these institutions have limited exposure to the U.S. financial system.
A recent USCC report also states that China-Iran transactions are increasingly bypassing SWIFT and Western banking systems, relying instead on shell companies in Hong Kong, the UAE, and other intermediaries, as well as non-dollar settlements.
(This article reflects the author’s personal views only and does not necessarily reflect the views of Vision Times.)
