It must be unique for New York to host the president of a country at war with the US. But alongside Iran’s Masoud Pezeshkian, who is in town for the UN General Assembly, an even more important protagonist in the conflict visited Donald Trump: Chinese leader Xi Jinping.
What does Beijing stand to gain from the US-Iran conflict? It benefits from Washington’s distraction. While a third of the US Navy is occupied in a war with no clear end goal, the US squanders munitions and international respect alike. Meanwhile, China is free to expand its strength, deal with its own problems and pose as the responsible, rule-abiding superpower.
The current “warm war” suits it just fine. With a strenuous and expensive US military effort, oil and other commodities are getting out of the Gulf in increasing amounts, although not to pre-conflict levels. That keeps up the domestic political pressure on the White House and means it cannot easily walk away.
China has reportedly provided satellite imagery to the Iranians to help them target US bases. It has also supplied shipments with dual-use components that Iran could use to build missiles and drones. As with Russia’s war against Ukraine, China can simultaneously profit, make itself invaluable to a combatant, keep a conflict bubbling along, restrain full-scale escalation and maintain the facade of benevolent neutrality.
In this vein, China does not want energy flows from the Gulf to be almost entirely cut, or for Iran to escalate, or return to large-scale, damaging attacks against regional infrastructure, as in March and April. It is a key investor across the Arab Gulf countries, much more than in Iran. It has large and expensive assets and many of its citizens live in the UAE, Saudi Arabia, Qatar, Oman and Iraq.
The Bab Al Mandeb strait at the southern end of the Red Sea, under recent threat from Iran’s allies, the Houthis in Yemen, is a key conduit for Chinese goods to Europe. A Chinese naval base in Djibouti keeps watch over this strait.
The GCC and Iraq are cumulatively far more important energy suppliers, customers and economic partners for China than Iran. Beijing does not need to choose between them. In 2023, it brokered a deal to restore diplomatic relations between Riyadh and Tehran, following the damaging drone and missile attacks on Saudi oil facilities in 2019.
Some hoped it would intervene to prevent a repeat. In this year’s war, China might have quietly restrained Iran from trying to unleash more devastation on Saudi energy infrastructure, which would damage its own interests, but it has not emerged as a mediator. Staying out of the morass probably seems wise in Beijing now, though it does impose a hard limit on China’s diplomatic and security weight. It has to be careful not to appear a fair-weather friend, or worse, a two-faced one, in the Gulf.
A return to the near-total blockade seen early in the war would hurt China’s key trading partners in Asia and Europe, notably energy-short Japan, South Korea and the Asean nations. Its export-dependent economy is limping; it does not want a global recession.
But Beijing is the best-prepared major nation for such an energy crisis, if it continues at a restrained level. Unlike the US, now a major net exporter, it is the world’s largest importer of both oil and gas. However, its domestic coal resource base and its vast and growing renewable and nuclear sectors insulate its electricity system from gas shocks.
It can be relatively flexible in its imports of liquefied natural gas, where Qatari shipments have been severely disrupted, because of its major gas pipelines from Russia and Central Asia. In turn, Moscow’s decision to torpedo its core European gas market has left it reliant on its giant eastern neighbour. Another ill-judged decision to go to war has contributed to Chinese ascendancy.
Last year, almost as if Beijing foresaw what was coming, it accumulated huge strategic stocks of oil, which it has been gradually drawing down since the start of the war. Its state-directed energy system has proven a useful tool in meeting national priorities. It continues to electrify its road transport, gradually reducing its need for petroleum.
And its juggernaut of a clean-tech sector continues to gain from the war. Six of the top seven electric vehicle makers worldwide are Chinese. It accounts for about 79 per cent of the world’s wind turbine market, 80 per cent of the global solar photovoltaic market, and 80 to 90 per cent of core components for lithium-ion batteries.
Independent Chinese refiners did benefit from the opportunity to import cut-price Iranian crude. With the effective US maritime blockade, the last dribs of that are arriving. We still have to see whether China will help its friend weather the embargo, or somehow enable more Iranian oil to evade the stranglehold. After losing an ally in Venezuela in January, it will not want to see another leading oil exporter forced to bow to America.
On August 24, US Treasury Secretary Scott Bessent announced an “Economic D-Day” against Iran. But notably, the tougher sanctions have not specifically targeted China, which remains Tehran’s key trading partner and essentially the only remaining customer for its oil. Some previous American measures have hit individual Chinese independent refineries and oil terminals, but none of the major or systemically important ones.
China has enacted counter-sanctions, which would target companies complying with US restrictions, presenting them with a tricky choice. This resembles the European Union’s blocking statute, first introduced in 1996 and revived in 2018. But Brussels has never had the guts to wield this weapon seriously; Beijing will. It has leverage over the US, particularly in its ability to cut off rare-earth supplies. China thus has significant influence over the success of American sanctions against both Tehran and Moscow.
Of course, things could still go wrong. Chinese petroleum stocks are not infinite, while the US’s mastery of shale oil and gas remains a huge strategic advantage. A breakthrough in nuclear fusion or artificial intelligence might turbocharge the US energy system. The regime in Tehran could collapse under the strains of war and sanctions, and hand the US another invaluable Middle Eastern ally.
For all its strengths, China’s state-centric economy has serious long-term weaknesses. It cannot shrug off a severe shortage of oil indefinitely, in combination with its huge debt overhang, a real estate slump, an ageing workforce, and an over-reliance on exports in a suspicious world.
Yet, as US secretary of state Madeleine Albright said in 1998, “We are the indispensable nation. We stand tall, and we see further than other countries into the future.” Now she might have been speaking from the Great Hall of the People by Tiananmen Square.
