Iran uses support for China to ensure oil exports and foreign exchange earnings despite the isolation. Chinese independent refineries pay for oil in yuan, and part of the money is used to purchase goods in China. The money goes through a complex network of shell companies and financial centres.
How the shadow scheme works
Iran sells oil Chinese independent refineries, receiving payment in yuan. Tehran uses part of these funds to purchase Chinese goods, which are then shipped to Iran.
Part of the oil revenues are used in barter schemes. Chinese buyers transfer money to Chinese state-owned companies that build infrastructure in Iran.
The role of financial centres
A significant portion of China's oil revenues remains in foreign accounts. The main financial centres are Hong Kong, Dubai and Singapore.
Iranian importers and exporters exchange foreign currency between their companies. Internal settlements are made in Iran.
Context.
Iran is under international sanctions for its nuclear programme and other political reasons. China remains one of the few major buyers of Iranian oil.
According to the WSJ, cooperation with China allows Iran to receive foreign currency and maintain its economy in isolation. US officials believe that this complicates the effectiveness of sanctions.
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