Winner in Ukraine War, China is Loser in Iran

Mark O'Neill March 25, 2026 17:32

While China’s economy has benefitted greatly from Russia’s invasion of Ukraine, it is losing from the joint Israeli-American attack on Iran.

The greatest impact is in oil, of which China is the world’s largest importer. In 2021, China and Iran signed a 25-year co-operation agreement, which secured US$400 billion in Iranian oil at below market prices, in exchange for investment in Iran’s security and infrastructure.

By the end of 2025, China was importing up to 1.4 million barrels a day from Irian, 13 per cent of its total crude imports and 80-90 per cent of Iran’s oil exports.

To get round U.S. sanctions, this oil was bought by small private refineries, not major state-own companies. They paid in renminbi, not U.S. dollars, to avoid appearing in the SWIFT messaging system for international payments. China did not pay the market price.

Since Iran received payment in RMB, it could only buy Chinese goods and services. This made Iran increasingly dependent on China.

Since the war began on February 28, Iran’s production and exports have collapsed, leaving China with a shortfall of 1.4 million barrels a day.

In addition, China obtains about half of its crude and 30 per cent of its LNG from Gulf countries, including Iraq, Saudi Arabia, Qatar and the United Arab Emirates. These passed through the Straits of Hormuz, which is now effectively closed.

On the other hand, China did much to prepare for the war. Seeing President Trump’s increasing threats to Iran since the start of the year, it increased its oil imports in the first two months of this year by 16 per cent.

It has strategic and commercial reserves totalling about 1.3 to 1.4 billion barrels, equivalent to about four months of imports. This makes it better prepared than other Asian countries also heavily dependent on oil from the Gulf.

The war has other negative consequences for China. Like other countries, it buys many downstream oil products from the Gulf, including fertilisers and sulphur dioxide. The war has sharply pushed up travel and insurance costs. As the world’s top exporting nation, China is badly affected.

It will also lose from the global inflation caused by these higher prices for energy, transport and commodities. Economists predict an addition of 0.4 to 0.8 per cent to global inflation rates. This will dampen demand in China’s main export markets.

Its economic growth is largely driven by exports. In 2026, it posted a record trade surplus of US$1.189 billion, on exports of US$3.77 trillion, up 5.5 per cent.

In the first two months of this year, the surplus reached US$213 billion, with exports up 22 per cent, a record for the period. If this had continued, the surplus for the whole year would exceed that of 2025. Thanks to the Iran war, this is most unlikely.

The growth was so rapid that it prompted Bart de Wever, Belgium’s Prime Minister, to write to the European Commission and complain that Beijing’s economic policies were eroding Europe’s industrial base. He called for a more coherent and assertive approach.

Alicia Garcia-Herrero, chief economist for the Asia-Pacific region at Natixis, said: “China’s economy looks strong on the surface but is structurally fragile underneath.

“If the oil shock trips the global economy into a severe downturn, export orders collapse. Chinese factories slow and jobs are lost. A global recession would hurt China as much as anyone, and possibly more in some areas,” she said.

Diplomatically, however, the war is a win for China. Despite its enormous military and bases all over the Middle East, the United States has been unable to protect its allies from attacks by Iranian missiles and drones. What return have these countries obtained for their Pharaohnic investments in the U.S. and extravagant gifts to Donald Trump?

Second, the U.S. launched a unilateral war even though Iran posed no imminent threat. This behaviour makes China looks like a more stable and responsible member of the international community.

Militarily, it may also prove to be a win for China. The U.S. is moving moved part of its naval vessels and manpower from Asia to the Middle East. The war may last months, even years. This will make it easier for China to blockade or invade Taiwan and the U.S. less able to defend it.

“If the U.S. military presence in the Asia-Pacific is weakened, you can imagine the consequences,” said Li Yihu, a member of China’s National People’s Congress told reporters in Beijing this month. “Who will benefit?”

Mark O'Neill

A Hong Kong-based writer, teacher and speaker.