China–Iran Oil-for-Weapons Trade Loop: Rising Risks For Global Maritime Security

Dryad Global’s new report, “The China–Iran Oil-for-Weapons Trade Loop: Entities, Sanctions, and Implications for Proxy Warfare,” uncovers how China and Iran’s growing cooperation is reshaping global maritime and geopolitical risks.

Rooted in their 2021 Comprehensive Strategic Partnership, this trade loop allows Iran to secretly sell oil to China in exchange for military technology and weapons. These covert operations not only undermine international sanctions but also fuel regional instability and increase operational dangers for shipowners, insurers, and ports worldwide.

The Sanctions-Resistant Oil-for-Weapons Network

Despite strict U.S. sanctions, Iran continues exporting 1.5–2 million barrels of oil per day, with 80–90% going to China. This trade generates over $50 billion annually, helping Iran finance its military and proxy groups. A “shadow fleet” of nearly 477 old tankers, many sailing with tracking systems turned off, transports these illegal shipments.

To hide the origin of the oil, it is often mislabeled as “Malaysian” and delivered to Chinese refineries through ports like Rizhao Shihua and Daya Bay. In return, Chinese firms supply Iran with missile and drone components, strengthening Iran’s weapons programs. Despite 19 rounds of U.S. sanctions this year, these secret exchanges continue through barter deals, yuan payments, and front companies, weakening global enforcement efforts.

Growing Maritime and Security Threats

The trade loop is fueling proxy warfare and maritime insecurity across key global routes. Iran-backed groups, such as the Houthis, have intensified attacks in the Red Sea and Gulf of Aden, conducting over 130 drone and missile strikes since 2024 using Chinese-supplied components. A 2025 U.S. Naval Forces report highlights a 40% increase in successful attacks, showing how dangerous this partnership has become.

The Islamic Revolutionary Guard Corps (IRGC) and its allies are also using cyberattacks, GPS spoofing, and piracy tactics to target commercial ships. Reports suggest this could lead to a 30% rise in piracy-related incidents by 2027, especially in the Strait of Hormuz. Moreover, the sea routes used for arms smuggling to proxy groups disguised as normal trade pose further threats to stability in regions like Syria and Yemen.

Dryad Global warns that the China–Iran oil-for-weapons trade loop is not just a geopolitical issuevit’s a direct commercial and maritime threat. With ageing tankers, falsified documents, and growing proxy warfare, this network increases the risk of environmental disasters, sanctions violations, and maritime attacks.

For shipowners, insurers, and ports, stronger due diligence and voyage screening are essential to avoid exposure to this shadow network. Ultimately, unchecked expansion of this trade system could erode global maritime governance and endanger long-term regional stability.