Western sanctions and export controls were meant to subdue America’s enemies, leveraging the power of the dollar to strong-arm governments into submission without the bloodshed of military force. They have inadvertently birthed a global shadow economy tying together democracy’s chief foes, with Washington’s primary adversary, China, at the center.
Unprecedented finance and trade restrictions on Russia, Iran, Venezuela, North Korea, China and other authoritarian regimes have squeezed those economies by curbing access to Western goods and markets. But Beijing has increasingly foiled those U.S.-led efforts by bolstering trade ties, according to Western officials and customs data. The bloc of sanctioned nations collectively now have the economy of scale to shield them from Washington’s financial warfare, trading everything from drones and missiles to gold and oil.
“China is the strategic competitor willing and able to reshape the current global order,” said Dana Stroul, a former senior U.S. defense official and now a senior fellow at The Washington Institute for Near East Policy.
Liu Pengyu, a spokesman for the Chinese Embassy in Washington, defended Beijing’s policies, saying that the country wasn’t providing lethal weapons to anyone involved in the Ukraine conflict.
“China carries out normal economic and trade exchanges with relevant countries on the basis of equality and mutual benefit,” he said. “The relevant trades under international law are legal and legitimate, thus should be respected and protected.”
The governments of Russia, Iran, Venezuela and North Korea, contacted through their diplomatic offices in the U.S., didn’t respond to requests for comment.
The bloc’s trade needs are aligned. On one side of the equation, China gets oil from three OPEC powerhouses—Russia, Iran and Venezuela—at heavily discounted prices. That is a windfall for the world’s biggest oil importer, which bought more than 11 million barrels of oil a day last year to keep its economy running. Those countries, in turn, then have revenue they can use to buy sanctioned goods from China.
“Oil revenue from China is propping up the Iranian and Russian economies and is undermining Western sanctions,” said Kimberly Donovan of the Atlantic Council, a Washington-based think tank. Donovan, who calls this group the “axis of evasion,” said the countries’ use of Chinese currency and payment systems for that trade restricts Western authorities’ access to financial data and weakens their ability to enforce sanctions.
Chinese and Russian customs data show China has supplanted Russia’s loss of Western access to the highest priority dual-use goods, products that have both civilian and military uses.
A Chinese state-owned defense company, Poly Technologies, for example, sent nearly two dozen shipments between September and December last year to a U.S.-sanctioned, state-owned Russian firm that manufactures military and civilian helicopters—Ulan-Ude Aviation Plant, according to a Journal review of Russian customs data.
Poly Technologies, which is also sanctioned by the U.S., is also responsible for a 1,200 kilo shipment of rifles on Feb. 16 last year to Izhevsky Arsenal, which describes itself as a government contractor and one of Russia’s biggest wholesalers of weapons.
Customs records also show Chinese firms were responsible for all 60 shipments last year to a Russian company that U.S. officials say is part of the procurement channel for Iran’s production of military drones in Russia for Moscow’s forces. The companies didn’t respond to requests for comment.
Russia’s war against Ukraine has also provided Tehran with an economic and strategic opportunity. Selling Moscow fleets of military drones and establishing a production facility in Russia provides Iran with income, bolsters international perceptions of Tehran’s military power, and provides valuable wartime data, say former U.S. security officials.
Iran is also supplying Venezuela with weapons, technical assistance for its energy infrastructure, and other sanctioned goods, according to U.S. officials and customs data. In exchange, Caracas has provided Iran with gold from its vast Orinoco deposits, according to Western officials, a commodity difficult to track around the world and whose fungibility allows for sanctioned nations to sidestep the Western banking system.
China’s ability—and willingness—to keep Russia’s war machine running and help Moscow rebuild its military industrial capacity fostered unprecedented trade and finance, say U.S. officials.
“It revealed a degree of trust that could potentially open the door to wider integration of their defense industrial base,” said a senior intelligence official with knowledge of the two countries’ trade relationship.