Washington is unlikely to persuade Beijing to yield to its demand of stopping Iranian oil purchases, an economic lifeline for Tehran the US desperately seeks to sever, analysts say.
The purchase of Iranian oil and the security of global energy flows and commodities through the Strait of Hormuz will dominate discussions during US President Donald Trump’s two-day visit to China from May 14.
Though the US scrutiny of Beijing’s conduct will be intense, Mr Trump is unlikely to walk away with a win on stemming the flow of Iranian crude to Chinese ports from the presidential summit.
“I don’t think China can easily be pressured against its own interests at a time when US influence appears to be weakening, even with historical alliances,” said Ipek Ozkardeskaya, a London-based senior analyst at Swissquote Bank.
Iran sells most of its total crude exports to China, the world’s largest oil importer, and payments from Beijing are Tehran’s biggest source of foreign exchange, which is fuelling its wobbling economy.
The US already has a naval blockade in place around Iranian ports to intercept tankers carrying crude oil. However, “there is still at least 100 million barrels of Iranian oil outside the US blockade and on its way to China”, said Robin Mills, chief executive of Dubai-based Qamar Energy.
“I don't believe China will give in to any US demands to stop buying Iranian oil. It recently introduced a law blocking US sanctions on its refineries. Iranian oil is not that important financially to China, but there is an important point of principle.”
The US option of going after individual Chinese buyers remains open, but then it will be a question of “how effectively China can insulate them and their banking relationships”, Mr Mills added.
Traffic through the Strait of Hormuz, the vital trade route through which a fifth of the global oil and gas normally flows, has all but come to a halt since the Iran war broke out on February 28.
The US is desperately seeking a global coalition to get the transit route open, the closure of which has delivered an unprecedented energy supply shock. China, along with Russia, however, has opposed US-Israel strikes on Iran and is advocating a negotiated solution to reopen the strait.
“The US will want China to use its influence with Tehran, especially because China is a major buyer of Iranian oil,” said Charu Chanana, chief investment strategist at Saxo Bank. “China, meanwhile, wants energy security and stable shipping lanes, but it is unlikely to appear as if it is acting under US instruction.”
The most likely outcome of the summit is “not a dramatic public deal”, but a more subtle signal that both sides agree to avoid further escalation and “keep shipping lanes open and support a diplomatic path”, Ms Chanana said.
US leverage?
For markets, even a subtle gesture from Beijing of co-operation with Washington would be positive in terms of how the risk premium is viewed.
But does the US have leverage to force China to accept its demand? Analysts say no.
“What practical options Washington has, I would say … sanctions and tariffs. But even then, what happens if China gets away with tariffs today?” Ms Ozkardeskaya said. "The US uses tariffs in all sauces. It makes no sense."
Amena Bakr, head of Middle East Energy and Opec+ Insights at energy analytics firm Kpler, agrees, saying the old playbook of US sanctions on China is largely ineffective.
“That's been tried before. It didn't work,” she said.
The Chinese buyers of Iranian oil have been ignoring that threat, and “I don't think the government really is forcing them not to buy”.
Iranian barrels, which were previously discounted, are still accessible, especially the ones that are floating outside the Strait of Hormuz, she added.
Sweetening the deal
The Trump-Xi meeting this week is not just a diplomatic showcase: it is a broader market event that sits at the intersection of the Iran war, wild swings in oil prices, inflation worries, mounting trade uncertainties and rare earths qualms, as well as the race for semiconductors and AI supply chains, according to Saxo Bank.
To get Beijing to co-operate or tow Washington’s line, the US will have to use more than the threat of tariffs against China.
It may have to sweeten the deal a bit for Beijing, Ms Bakr said.
About 40 per cent of oil and gas that flows through the Strait of Hormuz is destined for Chinese buyers, and it will logically be in China’s interest to co-operate with the US and convince Iran to reopen the strait. However, the huge crude reserve of more than 1.4 billion barrels, which China has built over the past year-and-a-half, somewhat insulates the world’s second-largest economy from the current crisis, allowing Beijing to defy US pressure, she said.
“It hasn't even begun to release oil from the storage. So, it bought itself time. It bought Iran time and is not willing to [take] pressure unless there is – on some level – some kind of an exchange that happens between the two leaders,” she said.
China is considered Tehran’s ally, and the biggest gift Beijing has given Tehran during the conflict is “the gift of time”, by not forcing Iran to open the strait on which China itself is dependent, she said.
It is not in China's interest to intervene unless it can ask trade-offs on matters such as “Taiwan and maybe related to trade”, and if Mr Trump agrees, it will create grounds for them to speak to the Iranians.
The US is likely to treat Chinese purchases of Iranian oil as a major priority during the visit, “not as a stand-alone demand, but as part of a wider negotiation over many issues including trade balances, technology access, sanctions implementation and strategic stabilisation”, said Tim Fox, partner, policy and economics at Capitalgate Advisers.
China, he added, might equally see it as part of a wider conversation, “enabling it to raise its own priorities, including over Taiwan”.
In the past, Ms Bakr said, there has been very diplomatic messaging out of China saying that the strait is important. However, there hasn't been "really any pressure on the Iranians to open it”, she said. “But if it's an exchange, that's maybe the way to go. But I don't know if Trump would be OK with that. It's not his negotiating style.”
High stakes
Mr Trump’s summit with Xi Jinping was originally designed to reset trade ties, but the Middle East conflict has changed the complexion of the state visit. The two-day engagement scheduled for May 14-15 marks the first visit to China by a sitting US president in nearly a decade.
The conflict continues, and the month-long ceasefire is teetering, with the US and Iran exchanging fire in the strait last week. Iranian attacks on its neighbours continue, albeit at a lower frequency. The stake for Mr Trump is high going into the summit with the Chinese President.
There is a lot more on the table for discussion beyond the energy, including the trade and tariffs, AI co-operation and interdependence of the world’s two largest economies on each other.
However, “with both sides focused on risk management, major breakthroughs are deemed unlikely”, according to Swiss private bank Julius Baer.
Mr Trump walks into the summit with the US “increasingly perceived as an unreliable partner with an unpredictable foreign policy”, which is strengthening China's global position and making China “unlikely to accept unfavourable US demands”, Ms Ozkardeskaya said.
The two sides are already engaged in a tech war, which also makes any meaningful co-operation between them highly unlikely for national security reasons.
“Trump needs strong headlines that showcase US power over China, which could make any major agreement difficult to achieve,” she said.
