Not Just Israel, Iran, or the U.S.

Who Else Stands to Lose in the Iran–Israel War?

An energy-risk analysis of China’s fragile oil alliance with Iran

Image generated with the assistance of ChatGPT-4o.

Iranian missiles were flying toward Israeli airspace. Tel Aviv scrambled its defenses. Washington moved carriers closer to the Gulf. Oil traders around the world held their breath.

Of course, Iran, Israel, and the United States are under immense pressure.

But one country, far from the battlefield and largely silent, has more at stake than it seems: China.

Beijing has quietly become Iran’s top oil customer, importing over 1.4 million barrels per day, more than 90% of Iran’s total crude exports in 2025.¹ ² The import is largely through discreet, often unsanctioned channels.² These flows are increasingly settled in RMB (China’s Official Currency), not U.S. dollars, making China both Iran’s economic lifeline and a key player in an emerging alternative energy-finance system.² ³

But this quiet arrangement comes with high exposure. If the Strait of Hormuz were to close, China could face a dual shock: a supply crunch and a surge in inflation, which would threaten its export competitiveness and energy stability. This is more than a regional war. It’s a pressure test for China’s oil strategy and ambitions to reshape the global financial order.

Why Is Iran Important to China?

To China, Iran is not just another oil supplier. Actually, it is a strategic partner shaped by sanctions and opportunity. According to the Atlantic Council, over 90% of Iran’s crude oil exports now flow to China, averaging more than 1.4 million barrels per day.² Much of this is routed through smaller, independent “teapot” refineries, allowing the transactions to bypass U.S.-led sanctions.¹ ²

Why would Beijing take such a risk? The answer lies in three strategic incentives:

1. Price: Sanctioned Iranian oil is heavily discounted. In 2023 alone, China saved an estimated $10 billion by sourcing crude from sanctioned suppliers like Iran and Russia.² Iranian light crude, for instance, was trading at $3.30 to $3.50 per barrel below ICE Brent for July deliveries, compared to a $2.50 discount in June (2025) as reported by Reuters.⁴ These price advantages give Beijing a compelling reason to maintain oil ties with Tehran, despite the geopolitical risk.
2. Political Alignment: Both China and Iran oppose U.S. interventionism, making them partners in a shared political stance. This alignment was formalized in March 2021, when the two countries signed a 25-year strategic cooperation pact to boost Chinese investment in Iran’s oil, gas, and petrochemical infrastructure.⁵ More recently, following the U.S. airstrikes on Iranian nuclear facilities in June 2025, China’s Foreign Ministry publicly voiced support for Iran by condemning “violations of national sovereignty.” While the statement avoided directly criticizing Israel, it reaffirmed Beijing’s political alignment with Tehran during a moment of heightened regional tension.⁶
3. Dedollarization Ambition: An increasing share of China-Iran oil trade is settled in RMB (China’s Official Currency) instead of dollars.² Iran is a key testing ground for Beijing’s currency internationalization strategy.

[Notes] Curious whether the RMB could ever rival the U.S. dollar? I unpack that debate in another piece. Here’s the link if you’d like to explore more:

[embed]Can Crypto or RMB Kill the Dollar? Tired of the Dollar? So Is Everyone. But You’re Stuck With It.medium.com

Yet this arrangement is a double-edged sword. The deeper the ties, the more China exposes its energy security to one of the most volatile regions in the world.

China Energy Structure: Still Dependent on Oil

Despite pledges of carbon neutrality by 2060, China remains heavily reliant on fossil fuels, especially coal and oil.

The following chart breaks down China’s primary energy consumption by source, highlighting just how central fossil fuels still are to its energy system.

Data Source: National Bureau of Statistics of China [7]

As you can see, in 2024, coal still accounted for over 50% of China’s primary energy consumption. Oil came second at around 18%, a pattern that has remained unchanged since 2017.

While oil’s share is far lower than coal’s, its strategic role is far greater. Unlike coal, which is used primarily for domestic power generation, crude oil powers transportation, agriculture, and even military logistics.⁸

China is investing heavily in renewables, but technological and infrastructure constraints still limit their contribution, especially in the short term. Crude oil remains more affordable and logistically viable in many applications.

Even if China eventually finds a cleaner substitute, oil remains irreplaceable for now, and increasingly, it must be imported.

Data tells us:

China’s reliance on imported crude oil has deepened.

Over the past decade, China’s dependence on imported crude oil has quietly surged, from 57.5% in 2012 to 72.5% in 2022. That means nearly three out of every four barrels burned in China today must cross an ocean before reaching their destination.

The trend is illustrated below:

Data Source: National Bureau of Statistics of China ⁷ Import Dependency Formula: (Crude Oil Imports ÷ Total Crude Oil Consumption) × 100%

Much of that oil comes from regions with shifting political fault lines, such as the Middle East, Russia, and Central Asia. They shake the very foundation of China’s energy security, and by extension, the engine of its economic growth.⁸

And nowhere is this risk more concentrated than the Strait of Hormuz.

What If the Strait of Hormuz Is Blocked?

Iran has repeatedly threatened to block the Strait of Hormuz — one of the world’s most critical oil chokepoints. But if that threat ever materializes, who would be hit? To answer that, we first need to understand the strategic importance of this narrow waterway.

The Lifeline of Asian Energy

The Strait of Hormuz handles roughly 25% of global seaborne crude oil and 20% of global liquefied natural gas trade every day.⁹ Much of this flows from producers like Saudi Arabia, Iraq, and Qatar to energy-hungry importers in Asia. The Strait isn't just a passage for countries like China, India, Japan, and South Korea. It’s a lifeline.

Why This Isn’t Just Asia’s Problem: Ripple Effects in the West

Even countries outside the direct shipping routes, like the United States and European economies, would feel the shock due to globalization. In 2024, the U.S. imported only 2% of its crude oil consumption via the Strait of Hormuz,⁹ thanks to high domestic production and increased Canadian imports. But that doesn’t mean it’s immune.

In the worst-case scenario, analysts estimate Brent crude could spike to $130 per barrel, pushing U.S. inflation back to 6% and eurozone inflation to nearly 4%.¹⁰ Central banks might freeze or delay interest rate cuts, derailing hopes of global monetary easing in 2025.¹⁰

The macroeconomic hit wouldn’t stop there: Global GDP could fall 0.3% below current forecasts by 2026, with the U.S. and eurozone each losing up to 0.4–0.5 percentage points of growth.¹⁰

What It Means for China?

China would face an even more acute set of challenges.

Over 40% of China’s seaborne crude oil imports flow through the Strait of Hormuz.⁹ A blockade wouldn’t just disrupt supply. It would trigger a dual shock: a physical shortage and a global price spike, likely pushing oil above $100 per barrel.

**[Update] **Following the recent ceasefire agreement, risk premiums have eased, and ICE Brent prices have come down accordingly.

Even if China manages to secure alternative suppliers, higher global oil prices would strain key sectors like transportation, agriculture, and military logistics.⁸ To make matters worse, China relies heavily on sanctioned Iranian oil, which is priced at a steep discount.⁴ Losing access to this source means scrambling for volume and paying a premium.

Finally, China’s export-driven economy would suffer a second blow: As global inflation rises and Western economies slow, external demand would contract, threatening China’s manufacturing sector and trade balance.¹⁰

China’s Dilemma: Political Support or Economic Stability

China’s muted diplomatic response to the recent escalation says a lot. It condemned the violation of sovereignty⁶, but carefully avoided siding too closely with Iran.

This caution makes sense given what we’ve explored about China’s energy structure and economic exposure. Beijing has no interest in escalating a conflict that could threaten its growth, fuel inflation, and destabilize a vital energy lifeline.

China may be far from the battlefield, but in the game of oil and war, distance offers little protection.

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🧠 I write about the world through an economic lens, sometimes it’s global power plays, sometimes it’s the quiet brilliance of a dumpling shop. All my stories are backed by reliable data, research, and the occasional economic insight, so we can all become a little smarter, together.

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All data sources cited below support the original analysis presented in this article. Every chart and argument is independently developed by the author, based on credible and publicly available materials.

References:

¹ Bousso, Ron. “Lifting US Sanctions on Iran Could Crush China’s ‘Teapot’ Oil Refineries.” Reuters, May 19, 2025. Accessed June 23, 2025.

² Donovan, Kimberly, and Maia Nikoladze. “The Axis of Evasion: Behind China’s Oil Trade with Iran and Russia.” New Atlanticist, Atlantic Council, March 28, 2024.

³ U.S. Energy Information Administration. “World Oil Transit Chokepoints.” Last updated June 25, 2024. Accessed June 23, 2025.

⁴ Aizhu, Chen. “Discounts Deepen on Iranian Oil in China as Struggling Teapots Slow Buying.” Reuters, June 20, 2025. Accessed June 24, 2025.

⁵ Hatipoglu, Emre, and Majed A. Al Suwailem. “Implications of the 2021 Iran-China Deal for the Oil Market.” Commentary, KAPSARC, October 5, 2021.

⁶ Anniek Bao, “China’s Support for Tehran Grows More Restrained as U.S. Enters War Between Israel and Iran,” CNBC, June 23, 2025. Accessed June 24, 2025.

⁷ National Bureau of Statistics of China. “National Bureau of Statistics of China.” Accessed June 24, 2025.

⁸ Meidan, Michal. “The Outlook for China’s Fossil Fuel Consumption under the Energy Transition and Its Geopolitical Implications.” OIES Paper CE8, Oxford Institute for Energy Studies, June 2023.

⁹ U.S. Energy Information Administration. “Amid Regional Conflict, the Strait of Hormuz Remains Critical Oil Chokepoint.” Today in Energy, June 16, 2025.

¹⁰ Kearney, Niamh. “Impact of the Iran-Israel Escalation on Oil Prices.” Oxford Economics Blog, June 23, 2025.