TOKYO — Donald Trump’s recent military escalation against Iran is forcing Beijing to confront difficult economic and political trade-offs, raising questions about whether Washington is intentionally putting pressure on China.
China was still absorbing the fallout from the Venezuela operation when reports surfaced that a US-Israeli strike had killed Iran’s Supreme Leader Ayatollah Ali Khamenei. In January, US forces removed Venezuelan President Nicolás Maduro, disrupting ties into which China poured at least $106 billion from 2000 to 2023. The U.S. has since taken control of Venezuela’s oil and positioned itself to influence the country’s future.
Now Washington’s actions are straining Beijing’s relationship with Tehran. Before the strike, about 90% of Iran’s oil exports were headed to China, accounting for roughly 15% of China’s crude imports. Iran had been central to Beijing’s Middle East strategy, cemented by a 2021, 25-year cooperation deal that pledged roughly $400 billion in investment.
Beijing immediately condemned the operation and demanded a ceasefire. Chinese Foreign Minister Wang Yi said it was unacceptable to kill the leader of a sovereign nation and to pursue regime change.
Many observers treat Trump’s moves as spectacle rather than coherent strategy. Some U.S. commentators mocked the Iran operation as “Operation Epstein Fury,” suggesting it was meant to distract from the president’s personal scandals. Yet the economic consequences for China and the wider region are material and unfolding now.
Oil jumped as much as 13%, topping $83 a barrel after the strike. Iran supplies about 5% of global crude; Bloomberg Economics analyst Ziad Daoud warns that if Iranian shipments halted completely, prices could rise by about 20%. If the Strait of Hormuz — a vital transit chokepoint — were closed to tankers, prices could climb toward $108 per barrel.
Carlos Casanova, an economist at Union Bancaire Privée, notes that geopolitical tensions are arriving just as the oil market was in a state of narrowing backwardation since 2025, a sign that supply outpaced demand and futures traders expected lower prices. A big supply shock would be necessary to reverse that trend and force a sustained price surge, though that remains uncertain.
A sudden jump in import costs would complicate China’s economic rebalancing. While Beijing may welcome an escape from deflationary pressure, higher energy bills would limit policy options and raise costs for industry. If a prolonged Gulf conflict forces China to replace Iranian crude quickly, the effects would ripple through global manufacturing chains.
Europe and India are also nervous. The U.S. can lean on its shale output to blunt shocks, but China would lose another source of inexpensive oil. TD Securities analyst Rich Kelly says Russia could benefit if India and China shift demand to discounted Urals crude, easing some pressure on Moscow from falling Russian oil prices.
The timing is awkward: a summit between Trump and Xi is planned in about a month. After recent tariff clashes, Xi faces a difficult calculation. Tolerating U.S. interference in China’s ties to Venezuela and Iran could undermine his standing inside the Chinese Communist Party, where he has tightened control over the military and acted to shore up perceptions of strength.
Geoeconomically, the balance is fragile. A tentative U.S.-China detente had helped stabilize markets; renewed tensions between the two largest economies would harm Asia. A sustained Middle East war would especially strain Asian oil and gas importers. Stefan Angrick of Moody’s Analytics points out that roughly a third of global seaborne crude transits the Strait of Hormuz, much of it bound for China, India, Japan and South Korea — adding uncertainty to trade and growth forecasts.
China’s strategic petroleum reserves can cushion short-term shocks, but supply disruption would still complicate matters for energy-dependent India and other importers. India had agreed to taper Russian purchases under a U.S. trade understanding now threatened by legal rulings over Trump-era tariffs.
Moody’s warns that high-income Asian economies — including Hong Kong, Japan, Korea, Singapore and Taiwan — import more than 80% of their energy, leaving them exposed to direct economic fallout. Takeshi Yamaguchi, chief Japan economist at Morgan Stanley MUFG, says the Bank of Japan, already unlikely to lift rates soon, may postpone hikes further if Middle East tensions persist. A drawn-out crisis could push back expected rate increases across the region.
Food and commodity prices are another risk. Rising energy costs would feed inflation and complicate central-bank decisions. Emerging Asian countries with heavy external debt burdens — from Bangladesh to Pakistan to Sri Lanka — would be particularly vulnerable, still coping with spillovers from the Ukraine war.
Much hinges on how long and how intense the standoff becomes. Whether the Strait is physically closed or merely avoided by insurers and shippers, flows will be disrupted. Jorge Leon of Rystad Energy warns markets should expect a significant upward repricing of oil without rapid de-escalation.
Historically, investors sell off geopolitical-risk premia when hostilities begin, then buy back when tensions ease. Barclays analysts caution that the market may currently underprice scenarios in which containment fails, increasing the chance of abrupt surprises.
Higher energy costs bolster arguments inside China for supporting the yuan. Its recent stability has produced the currency’s longest winning streak since 2010. Brad Setser of the Council on Foreign Relations notes that a weak yuan imposes real costs on Chinese households and the broader economy, and says there is an active domestic debate over the merits of exchange-rate support.
Liu Shijin, a former member of the People’s Bank of China’s monetary policy committee, argues that a reasonable yuan appreciation would raise purchasing power, stimulate domestic consumption and increase the currency’s global appeal. Stephen Jen, CEO of Eurizon SLJ Capital, forecasts the yuan could strengthen to roughly 6.25 per dollar by year-end, about 10% stronger than recent levels.
Beijing appears less confident that a persistently undervalued currency automatically drives growth, having watched Japan’s long struggle with a weak yen. Still, a Middle East conflict that cools global demand would make sustaining near-5% Chinese growth more difficult and complicate any currency-management strategy.
With U.S. strikes hitting Tehran as China conducts its Two Sessions political meetings, the economic and political stakes for Xi and Beijing have risen. The coming weeks will test how Beijing balances geopolitical pressures with economic stability and domestic political standing.
Follow William Pesek on X at @WilliamPesek
