Iranian Oil Reaches China Through Malaysian Waters Despite US Blockade

The EOPL's Role in Sanctions Evasion

The Eastern Outer Port Limits has served for decades as an unofficial marketplace for sanctioned Iranian, Russian and Venezuelan oil. Located roughly 70km off Malaysia's shore and spanning an area comparable to Hong Kong, the anchorage sits outside Malaysia's territorial waters but within its Exclusive Economic Zone (EEZ), creating what analysts describe as a historically grey legal area.

The EEZ designation addresses fishing rights and natural resource exploitation rather than sanctions compliance at sea. Malaysia's Maritime Enforcement Agency has previously acknowledged the area is difficult to patrol due to its remoteness and jurisdictional gaps. In June, however, Kuala Lumpur amended its Exclusive Economic Zone Act to criminalize illegal anchoring, bunkering and unauthorized ship-to-ship cargo transfers within its EEZ.

The US naval blockade of Iranian ports initially ran from April 13 to June 18 and resumed on July 14 as part of the broader US-Israel military campaign against Iran. Despite these measures, Charlie Brown, director of Southeast Asia Regional Programs at the Yokosuka Council on Asia-Pacific Studies (YCAPS), said the EOPL anchorage remains just as busy as it has ever been, with up to 200 ships present on any given day and roughly half likely tied to Iran.

China's Role and Payment Mechanisms

China historically purchases about 90 percent of Iran's crude oil exports, according to the US-China Economic and Security Review Commission. The trade is facilitated by a network of middlemen serving China's independent teapot refineries, which are smaller operations less exposed to the US financial system than state-owned giants like CNPC, Sinopec and CNOOC.

Erica Downs, a senior research scholar at Columbia University's Center on Global Energy Policy, explained that crude bound for China from Iran involves multiple ship-to-ship transfers in international waters to disguise its origins. Payments are processed through China's Cross-Border Interbank Payment System, allowing transactions in renminbi outside the US-monitored SWIFT network.

Chinese customs data reveals a telling discrepancy: Iran exported about 1.4 million barrels per day to China last year, yet Chinese customs reported no oil imports from Iran. Meanwhile, China's reported imports from Malaysia at times greatly exceed Malaysia's actual oil production, indicating the crude originated elsewhere. Beijing has also blocked US sanctions on five teapot refineries imposed in late April, calling them a violation of international law.

What Lies Ahead

The US Treasury imposed fresh sanctions this week on six oil tankers it says transported Iranian oil to China and five companies registered in China and Hong Kong allegedly linked to Iran's shadow fleet. Beijing has yet to respond to these latest measures.

Experts maintain that sanctions alone have never halted the trade. As Brown noted, market and payment mechanisms evolved in response to sanctions but never stopped functioning. The only measure that physically interrupted Iranian oil reaching China, he said, was the naval blockade itself.