Iran has been using a covert payment mechanism resembling barter to circumvent international sanctions and purchase goods from China.

The scheme allows Iran to obtain medicines, cars, communications equipment and infrastructure-related goods from Chinese suppliers without direct payments between Iranian and Chinese companies through the international banking system, according to Reuters.

In at least one case over the past year, the system was used in contracts worth millions of dollars for the supply of air defense equipment to Iran.

Under the arrangement, proceeds from Iranian oil sales are transferred to special entities and then used to pay Chinese suppliers.

Between $2 billion and $2.5 billion may have passed through a special-purpose vehicle (SPV) over the past year. Around 70% of the funds was reportedly directed toward infrastructure projects, while the remainder was used to pay for goods supplied to Iran.

The mechanism gives Iran a way to continue purchasing Chinese products while avoiding direct international banking transactions.

At the same time, China retains access to discounted Iranian oil while reducing risks for its banks and companies doing business with Tehran.