How China Keeps Iran's Oil Industry Afloat

Summary

The Journal. — "How China Keeps Iran's Oil Industry Afloat"

Date: April 22, 2026
Host: Ryan Knudsen
Guest: Rory Jones (Wall Street Journal Reporter)

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Overview

This episode examines how Iran sustains its oil exports—and by extension, its war effort—despite harsh U.S. sanctions, with a focus on the secretive "shadow fleet" of oil tankers and the crucial role played by China. The hosts and reporter Rory Jones delve into the mechanics of this global smuggling operation, its economic and geopolitical context, and the implications of recent U.S. actions including a naval blockade.

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Key Discussion Points & Insights

1. Iran’s Sanction-Busting Oil Trade: The Ghost Fleet

Timestamps: 00:05–02:41

• Background: Iran’s oil industry has faced tough sanctions for nearly a decade, particularly from the U.S., which targets both Iran and any country buying its oil.
  • “Iran's oil industry has been under harsh sanctions for nearly a decade and the US imposes penalties on any countries that buy it.” — Ryan Knudsen (00:05)
• Survival Tactics: Despite sanctions, Iran has kept significant oil sales flowing with a clandestine shipping network known as the "shadow fleet" or "ghost fleet."
  • “A massive underground network, the so called shadow fleet of ships—tankers designed specifically to evade monitoring and sanctions.” — Rory Jones (00:23)
• Importance for Iran: Oil revenues are essential for the regime’s survival and war efforts.
  • “I don't think that Iran could have fought this war necessarily without the billions and billions of dollars… from these oil sales over the years.” — Rory Jones (00:53)

2. U.S. Blockade Escalates the Pressure

Timestamps: 01:16–02:41; 14:21–16:24

• Recent Events: After collapsed peace talks, the U.S. announced a naval blockade on Iranian Gulf ports, aiming to halt Iran’s ghost fleet and cut off its financing.
• Strategic Impact: The threat and use of force has proven disruptive to these shadow operations.
  • “What the US blockade has demonstrated is that quite easily you can use force to disrupt that entire operation. And the threat of force even... you just have to create a sense of fear.” — Rory Jones (01:39)
• Effectiveness: The blockade is causing real pain for Iran but is not foolproof—some shipments still get through.
  • “President Trump has extended the ceasefire, but said the blockade would continue… more than two dozen Iranian linked ships carrying oil and gas have been able to evade it.” — Ryan Knudsen (15:41)

3. China’s Role: Buyer, Enabler, and Geo-Economic Partner

Timestamps: 03:16–05:44

• Exit of Other Buyers: After U.S. pressure, most countries stopped buying Iranian oil—except China.
  • “Now China buys 80 to 90% of Iran's oil.” — Ryan Knudsen (04:17)
• China’s Stance: China does not recognize U.S. sanctions as binding and has built a mutually beneficial, multi-layered partnership with Iran.
  • “China's position on US sanctions... they think that they're a unilateral move by the US, and they don't have to enforce US sanctions. For China, it's also geopolitical.” — Rory Jones (04:32)
• Official Denial: China obscures its Iranian oil imports (e.g., reporting oil as coming from Malaysia or Oman) for plausible deniability.
  • “China's customs authorities haven't reported any crude imports from Iran from 2023 onward. Instead, China seems to be working with Iran to disguise its purchases.” — Ryan Knudsen (05:29)

4. How the Ghost Fleet Works: Evasion Tactics

Timestamps: 06:03–09:39

• Obfuscation Techniques: Oil is loaded onto tankers, which then turn off their transponders, change names and flags, and conduct ship-to-ship transfers to mask the oil’s origin.
  • “You might see another ship sidle up to the first ship and you'll see the crude move between the different ships. And that's called a ship to ship transfer.” — Rory Jones (06:11)
• Scale: 500+ ships serve Iran, with a global shadow fleet of over 1,000 aging vessels used by other sanctioned states like Russia and Venezuela.
  • “There are more than 500 ships that make up the shadow fleet that serves Iran.” — Ryan Knudsen (07:31)
• Opaque Ownership: The fleet is controlled by a maze of front companies, some connected to China, making accountability difficult.
  • “It's difficult to track... a lot of the ownership structures of these tankers are opaque.” — Rory Jones (08:08)

5. Shadow Banking and Chinese "Teapot" Refineries

Timestamps: 10:54–13:34

• Refining in China: Major Chinese oil companies avoid Iranian crude to protect their Western business; instead, small independent refineries, called "teapots," handle the oil.

  • “Those companies have international operations and are wary of running afoul of U.S. sanctions… there's also something of a shadow network of Chinese oil refineries called teapots.” — Ryan Knudsen (10:54)

• Volume Growth: Teapots have gotten increased quotas from the Chinese government, dramatically increasing their role.

  • “The amount of oil that teapots could take in was determined by government quotas... as you saw the government increase the quotas for these teapots… more oil moved from the state owned giants... [to] private teapot refineries.” — Rory Jones (11:48)

• Integration into Chinese Economy: Refined oil is integrated into China’s petrochemical and plastics industries.

• Shadow Banking: Small, local Chinese banks facilitate oil payments to Iranian shell companies, bypassing global financial scrutiny.

  • “Small Chinese banks... are more willing to set up those accounts and risk facilitating Iranian money flows.” — Rory Jones (13:00)

• Barter System: In some cases, proceeds go directly to pay Chinese firms building infrastructure in Iran, or to procure goods for Iranian importers.

  • “There's this barter system that means that money never even has to touch the international financial system and be overseen by the US.” — Rory Jones (13:43)

6. U.S. Efforts to Disrupt the Network

Timestamps: 09:39, 14:21–17:36

• Legal Hiccups: Although the shadow fleet mostly runs smoothly, indictments and seizures occur occasionally.

  • “We have seen that there have been occasional hiccups. The US actually indicted some individuals and companies involved in moving sanctioned Iranian oil.” — Rory Jones (09:14)

• Direct Intervention: The latest U.S. blockade targets all Iranian oil exports, not just those by Iranian ships.

  • “The US has gone even further and said that it is willing to block any Iranian exports anywhere in the world on any kind of ship... fired on an Iranian cargo ship Sunday, blowing a hole in its engine room.” — Rory Jones (14:38)

• Larger Dynamics: This crisis reveals the resilience of sanction-busting networks and the possible shift away from the US-controlled global financial system.

  • “China's been creating this alternative payment system that essentially cut out the US led financial system entirely… this anti US bloc led by China, Russia and Iran, to create systems that cut out the US entirely.” — Rory Jones (16:24)

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Notable Quotes & Memorable Moments

• “It's clever as well as sneaky, I'd say.” — Rory Jones, on the ghost fleet’s evasion tactics (07:25)
• “Now China buys 80 to 90% of Iran's oil.” — Ryan Knudsen (04:17)
• “What the US blockade has demonstrated is that quite easily you can use force to disrupt that entire operation.” — Rory Jones (01:39)
• “There's this barter system [with China] that means money never has to touch the international financial system and be overseen by the US.” — Rory Jones (13:43)
• “You might just see as a result of all of this... an anti US bloc led by countries like China and Russia and Iran, to create systems that cut out the US entirely.” — Rory Jones (16:24)

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Episode Timeline (Key Segments)

• 00:05–02:41 — Introduction to Iran’s shadow oil trade and its importance to the regime
• 03:16–05:44 — Context of U.S. sanctions, China’s emergence as dominant buyer
• 06:03–09:39 — Mechanics of the "ghost fleet" and the global scale of such smuggling networks
• 10:54–13:34 — How oil is laundered into China via "teaport" refineries and shadow banking
• 14:21–16:24 — U.S. efforts to block Iran’s oil trade, effectiveness of naval blockade, broader geopolitical consequences

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Closing Thought

This episode provides a compelling look at the intersection of economics, geopolitics, and clandestine networks, showing how countries under U.S. pressure devise sophisticated workarounds—and how those efforts may reshape global finance and power alliances. The persistence of Iran’s oil sales, with China’s help, highlights both the ingenuity of sanctions evasion and the limits of American intervention.

Transcript

[Ryan Knudsen]

Iran's oil industry has been under harsh sanctions for nearly a decade and the US Imposes penalties on any countries that buy it. And yet Iran has found a way to keep selling its oil, primarily through a massive underground network, the so called

[Rory Jones]

shadow fleet of ships, tankers designed specifically to evade monitoring and sanctions. Well, for Iran, this network has become a critical tool to keep its oil revenues flowing.

[Ryan Knudsen]

After the US and Israel attacked Iran, Iran closed the Strait of Hormuz, preventing other Middle Eastern countries from exporting their oil. But Iran has continued allowing this Ghost Fleet safe passage. How important is this for the Iranian regime in its survival?

[Rory Jones]

I don't think that Iran could have fought this war necessarily without the billions and billions of dollars it's received, equivalent of dollars it's received from these oil sales over the years. So this is a significant chunk of cash for Iran annually and it's a vital lifeline for the country.

[Ryan Knudsen]

That is, until last week. After peace talks collapsed, Trump announced a naval blockade on Iran's Gulf ports in an attempt to shut down its Ghost Fleet. Our colleague Rory Jones covers how money flows around the world and how the blockade is impacting this underground network.

[Rory Jones]

Iran and countries like Russia and Venezuela that have been sanctioned, they've used this shadow fleet of tankers to move sanctioned oil around the world. But what the US blockade has demonstrated is that quite easily you can use force to disrupt that entire operation. And the threat of force even, because you don't necessarily even have to intercept ships to do that, you just have to create a sense of fear that the US will.

[Ryan Knudsen]

Welcome to the Journal, our show about money, business and power. I'm Ryan knudsen. It's Wednesday, April 22nd. Coming up on the show, the Ghost Fleet that's funding Iran war efforts.

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[Ryan Knudsen]

During President Trump's first term in office, he pulled out of the nuclear deal the Obama administration had struck with Iran and imposed what he called a maximum pressure campaign in hopes of getting Iran to give up on its nuclear ambitions. Here's then Secretary of State Mike Pompeo. We have an obligation to put maximum pressure on the regime's ability to generate

[Rory Jones]

and move money, and we will do so. And what it aims to do is reduce Iranian oil exports to zero. So we want to cut that financial lifeline, which makes up a huge chunk of Iran's annual budget.

[Ryan Knudsen]

The US threatened to hit any buyers of Iran's oil with sanctions, effectively drying up the country's customer base.

[Rory Jones]

So you had countries in Europe and in Asia buying, you know, US allies buying Iranian oil before that, but they all then left the room and only really one significant buyer emerged, and that was China.

[Ryan Knudsen]

Now China buys 80 to 90% of Iran's oil. One reason is there isn't much competition for it, making it much cheaper. Another reason is because China doesn't exactly agree with the US's sanctions policy.

[Rory Jones]

China's position on US sanctions is that they don't support them and they think that they're a unilateral move by the us, and that's US policy, and that they don't have to enforce US sanctions. For China, it's also geopolitical. China has a far deeper relationship with Iran than just buying its oil. Because Iran has been under US sanctions for a very long time. It's had to create these alternative trade networks with countries that are friendlier towards it, and China is one of them. And so it buys a lot of goods from China. China builds a lot of infrastructure in Iran. So there's a deep trade relationship there. And China saw the opportunity not only to get cheap oil, but to help a friend and at the same time undermine US interests.

[Ryan Knudsen]

China's official position is that it doesn't import Iranian oil. China's customs authorities haven't reported any crude imports from Iran from 2023 onward. Instead, China seems to be working with Iran to disguise its purchases.

[Rory Jones]

They don't outwardly say we are importing Iranian oil in opposition to U.S. policy. And so what the obfuscation and disguising of the Iranian oil does is it gives China the plausible deniability, the ability to say, and it were importing Malaysian oil or Omani oil.

[Ryan Knudsen]

Walk me through how Iran gets its oil to China through this ghost fleet. How does this ghost fleet operate?

[Rory Jones]

The ghost fleet, Iran pumps out crude oil and that oil is then loaded onto ships. One particular Iranian ship that might be part of the ghost fleet of tankers, it would get loaded with Iranian crude and move from the Persian Gulf where it's picked up Iranian crude. And then it might go to the Gulf of Oman to the middle of the sea. And at that point it might turn off a tracking system that it's supposed to have on the, on the tanker that reports its whereabouts. And at that point, maybe you might see another ship sidle up to the, to the first ship and you'll see the crude move between the different ships. And that's called a ship to ship transfer. And so that second ship might trundle along all the way to Asia and it gets to, in and around Malaysia and Singapore. And then another ship to ship transfer might happen and a smaller ship would then move that crude oil to a Chinese port where it would be refined. It's all about trying to obfuscate where this crude has come from.

[Ryan Knudsen]

It sounds pretty sneaky.

[Rory Jones]

Yeah, it's clever as well as sneaky, I'd say.

[Ryan Knudsen]

It's estimated that there are more than 500 ships that make up the shadow fleet that serves Iran, according to one analyst group. And Iran isn't the only country that uses the shadow fleet to avoid sanctions. Russia, Venezuela and other countries also have their own versions of the same system together. Analysts estimate that there is a global shadow fleet of more than a thousand mostly aging ships that all use the same techniques to hide their movements, like turning off location transponders and frequently changing a vessel's name and flag. Who owns the shadow fleet? It's certainly not just one company or one country.

[Rory Jones]

No, that's absolutely right. Yeah. It's difficult to track in essence, because a lot of the ownership structures of these tankers are opaque. There are reports by US Think tanks that there's a Chinese connected company that owns a fleet of tankers. And so the individuals and companies benefiting from the fleet is often difficult to trace.

[Ryan Knudsen]

Underpinning this fleet is a complex system of front companies.

[Rory Jones]

So Iranian shell companies that are leasing these ships, they might create fake invoices showing that the oil comes from somewhere else like Malaysia or Oman. And so what you have is this complicated dance where these tankers are involved in moving the oil and at the same time there's a bunch of shell companies and middlemen that are all trying to disguise where this oil is coming from.

[Ryan Knudsen]

Is it a well oiled machine, this shadow fleet, or are there often hiccups in this process?

[Rory Jones]

Well, I think based on how much Iran's been able to sell, you'd argue it is a pretty well oiled machine. But we have seen that there have been occasional hiccups. The US actually indicted some individuals and companies involved in moving sanctioned Iranian oil. And you can see in those indictments it's not all always a smooth ride

[Ryan Knudsen]

for these tankers getting oil out of Iran and onto these shadow tankers is only part of the process, though there are still several steps before Iran can turn that oil into money. How they do that is next.

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[Rory Jones]

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[Ryan Knudsen]

When Iran's oil gets to China, China's major oil companies don't want to deal with it. Those companies have international operations and are wary of running afoul of U.S. sanctions. So, like the shadow fleet of ships, there's also something of a shadow network of Chinese oil refineries called teapots.

[Rory Jones]

So the teapots are a set of refineries based largely based in one province in north eastern China called Shandong.

[Ryan Knudsen]

And are they called teapots because they are short and stout and when they get all steamed up, you can hear them shout?

[Rory Jones]

Yeah, you could hear them shout. Yeah. I mean, I'm not 100% sure myself.

[Ryan Knudsen]

The answer, in fact, is because they are smaller and shorter than a traditional refinery. And in recent years, those teapots have ramped up how much oil they process.

[Rory Jones]

The amount of oil that teapots could take in was determined by government quotas. And so what happened over time, as you saw the government increase the quotas for these teapots to import Iranian oil. And what that meant is that more oil moved from the state owned giants who essentially exited the market, along with Western countries and Asian nations that were buying Iranian oil. And these private teapot refineries took everywhere.

[Ryan Knudsen]

Essentially, after it goes through the teapots and gets refined, where does it go from there? Just into the broader Chinese market.

[Rory Jones]

The oil could go into the broader Chinese market. Some of these teapot refineries are part of other conglomerates or have relationships with other businesses in China, so that the crude then gets refined and then moves into some other version of petrochemicals or moves into plastics or it shifts along that chain.

[Ryan Knudsen]

Finally, there's the money. And like with the fleet and the refineries, there's also a shadow banking system too.

[Rory Jones]

There's these small Chinese banks that are more willing to open accounts for Iranian shell companies and front companies to receive oil proceeds that then can move on to other parts of the world. And those smaller banks are more willing to set up those accounts and risk facilitating Iranian money flows because they aren't really connected in the same way as bigger Chinese banks to the international financial system.

[Ryan Knudsen]

In some cases, proceeds from the oil sales are sent directly to Chinese construction companies, who take the money as payment for building infrastructure in Iran.

[Rory Jones]

So there's this barter system that means that money never even has to touch the international financial system and be overseen by the US One of the other things it could do is it gets paid for the oil in a bank account in China, and then it could use that money to procure things in China that Iranian importers need. So it might buy chemicals or dual use materials that are used to produce weapons, and then they are shipped from China to Iran.

[Ryan Knudsen]

The US estimates that Iran makes tens of billions of dollars per year from selling its oil to China. This is why the US started imposing that blockade targeting Iran's shadow fleet. The idea is to throw a wrench in the whole system.

[Rory Jones]

That was what happened initially. And then the US has gone even further and said that it is willing to block any Iranian exports anywhere in the world on any kind of ship. And so that's really like stepped up the enforcement. A US Naval destroyer firing on an Iranian cargo ship Sunday, blowing a hole in its engine room. President Trump said the footage and all of that is designed to put economic pressure on Iran and to force it into a deal. A deal to end the war, to negotiate over its nuclear program and other ways in which the US wants to curtail Iran.

[Ryan Knudsen]

So how effective is this blockade?

[Rory Jones]

The blockade, at least for now, is ensuring that Iran can't export oil and therefore it loses access to its financial lifeline. So it's proving to be a to create economic pressure on Iran.

[Ryan Knudsen]

President Trump has extended the ceasefire, but said the blockade would continue. Iran, meanwhile, says it won't negotiate unless the US lifts the blockade. Negotiations between the US and Iran seem to have stalled. Talks were supposed to resume this week in Pakistan, but neither side sent its delegation. While the US blockade has had an impact on the shadow fleet, it isn't perfect. According to a cargo tracking company and brokers arranging such cargo, more than two dozen Iranian linked ships carrying oil and gas have been able to evade it. The whole situation has revealed just how powerful the shadow network is and how difficult it might be to permanently put an end to.

[Rory Jones]

I think that it ties into this broader idea about whether the world moves away from US led financial system. In a sense, China's been creating this alternative payment systems that essentially cut out the US led financial system entirely and Russia's been doing the same. And the setup of the shadow fleet was trying to just avoid any kind of U.S. oversight. And so what you might just see as a result of all of this is that there is this push by these countries, this anti US bloc led by countries like China and Russia and Iran, to create systems that cut out the US entirely and cut out the US dollar and so mean that there's less oversight by Washington of what countries around the world are doing.

[Ryan Knudsen]

That's all for today. Wednesday, April 22 the Journal is a co production of Spotify and the Wall Street Journal. Additional reporting in this episode by Shelby Holiday, Austin Ramsey and Brian Spiegel. Thanks for listening. See you tomorrow.

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