TOKYO — Donald Trump’s military strike on Iran has intensified geopolitical strains in ways that directly affect China’s economic interests.
Beijing was still reeling from a separate US action that seized Venezuela’s president and assets when the US-Israeli bombardment killed Iran’s Supreme Leader Ayatollah Ali Khamenei. Earlier this year the US operation that detained Venezuelan President Nicolás Maduro disrupted a relationship in which China had invested at least $106 billion between 2000 and 2023, giving Washington control over Venezuela’s oil supply. Now, Washington’s move appears to be undermining another pillar of Beijing’s energy diplomacy: close ties with Tehran.
Before the strike, roughly 90% of Iran’s oil exports went to China, amounting to about 15% of China’s crude imports. Iran was a central element of Beijing’s Middle East strategy under the 2021 25-year cooperation agreement, which envisioned up to $400 billion in Chinese investment. Beijing condemned the attacks quickly and called for an immediate ceasefire; Foreign Minister Wang Yi said it was fundamentally unacceptable to “openly kill the leader of a sovereign country and institute regime change.”
Critics in the US ridiculed the Iran operation as a distraction from domestic controversies, dubbing it “Operation Epstein Fury.” Whatever the motive, the economic fallout is being felt across Asia and beyond.
Oil initially jumped as much as 13%, topping $83 a barrel. Iran supplies about 5% of global oil; Bloomberg Economics analyst Ziad Daoud warned prices could rise roughly 20% if Iranian shipments were halted entirely, and that a closure of the Strait of Hormuz might drive prices toward $108 per barrel. Carlos Casanova of Union Bancaire Privée noted that, since 2025, the oil market had been in narrowing backwardation—an indication supply was outpacing demand—so only a major supply disruption would reverse that pattern and sustain a price spike.
A sharp rise in oil costs would complicate China’s fragile economic balance. While an end to deflation could be salutary, a sudden wave of imported inflation would be unwelcome. If conflict in the Gulf persists, Beijing would need to replace Iranian crude quickly, with knock-on effects for global supply chains—China remains the world’s manufacturing hub.
Europe and India are also exposed, though the US can lean on shale production in the short term. TD Securities’ Rich Kelly warned China would “lose another source of cheap barrels,” and suggested Russia could benefit if India and China shift demand toward discounted Urals crude, easing some pressure on the Kremlin from lower prices.
The timing is awkward: the strike came about a month before a planned summit between Trump and Xi. That poses a political dilemma for Xi Jinping. Appearing weak for not retaliating—or for failing to protect China’s strategic ties with Venezuela and Iran—could undermine his standing inside the Communist Party, especially after recent military reshuffles intended to consolidate control over the PLA and party apparatus.
Geoeconomic friction between Washington and Beijing would likely increase market volatility, which is bad news for Asia, a region that imports most of its oil and gas. 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. That injects fresh uncertainty into trade and energy planning. China’s strategic reserves could blunt short-term disruptions, but India faces its own complications: New Delhi imports substantial Middle Eastern oil and had agreed to reduce Russian purchases under a US-linked trade arrangement now imperiled after the US Supreme Court struck down Trump’s country-based tariffs.
Asia’s high-income economies, which depend heavily on imported commodities, are particularly vulnerable. Moody’s estimates that Hong Kong, Japan, Korea, Singapore and Taiwan import more than 80% of their energy. The Bank of Japan’s already slim chance of raising rates soon looks even less likely amid Middle East uncertainty, according to Takeshi Yamaguchi of Morgan Stanley MUFG; a possible June hike could be delayed further if tensions persist.
Food costs add another source of vulnerability. Rising commodity prices would fan inflation and complicate central-bank policy across the region, while emerging Asian economies with large external debts—Bangladesh, Pakistan and Sri Lanka—would face acute strain from concurrent energy and food shocks.
How severe the economic fallout becomes depends on how long and how intensely the conflict continues. Jorge Leon of Rystad Energy warns that whether the Strait of Hormuz is closed by force or effectively shut by risk avoidance, flows will be disrupted and oil will be repriced upward quickly. Barclays analysts add that markets often shed the geopolitical risk premium once hostilities begin; their worry now is that investors may be underpricing a scenario in which containment fails and the premium needs to be reinserted abruptly.
The threat of higher energy prices supports Beijing’s recent moves to buttress the yuan, which has enjoyed its longest winning streak since 2010. Brad Setser of the Council on Foreign Relations argues a weak yuan exacts real costs on Chinese consumers and the broader economy, and that internal debate over exchange-rate policy is significant. Former People’s Bank of China monetary policy committee member Liu Shijin says a “reasonable” appreciation would lift purchasing power and consumption while boosting the currency’s global standing. Stephen Jen of Eurizon SLJ Capital has forecast the yuan could strengthen to about 6.25 per dollar by year-end—roughly 10% stronger than at present—reflecting Beijing’s concern about the harms of an undervalued currency.
Yet if a prolonged Middle East war saps global demand, keeping Chinese GDP growth near 5% will be more difficult and managing the yuan more complicated. As American bombs fall on Tehran, Beijing’s Two Sessions political meetings are unfolding under amplified economic and geopolitical pressure.
Follow William Pesek on X at @WilliamPesek
