China faces economic fallout from Iran war

China loses Iranian crude oil at a discount due to the war.

When President Donald Trump arrives in Beijing later this March for his summit with Chinese President Xi Jinping, the official agenda will be like every other U.S.-China meeting in recent memory: tariffs, trade balances, supply chains, Taiwan.

 Analysis: Lieutenant Colonel Robert Maginnis, (in p(enjoyment) 

The real story of those who walked through the door with him will be Iran.

On February 28, the United States and Israel launched Operation Epic Fury, a sweeping joint campaign targeting Iran’s military, nuclear, and command infrastructure. Supreme Leader Ayatollah Ali Khamenei was killed in the first strikes—a seismic blow to a regime that had terrorized the region for nearly five decades. Within days, his son, Mojtaba, was installed as successor, a dynastic transfer within a theocracy that once claimed to reject hereditary rule.

The war continues — and its consequences are hitting Beijing harder than Xi Jinping ever planned.

Russia and China: non-observers

Both Moscow and Beijing are actively helping Iran fight this war. This needs to be made clear, because the administration's public messaging has been very cautious on this point.

Multiple U.S. officials have confirmed that Russia has shared satellite and targeting intelligence with Tehran — including the locations of U.S. warships and aircraft throughout the Middle East. That information comes at a cost. Seven U.S. service members have been killed so far in Iranian attacks. Iran’s own ISR capability has been largely degraded by our attacks. The accuracy of the missile and drone strikes that have occurred owes something to Moscow’s surface constellation.

Trump is reorganizing world energy markets and attacks on Iran are actually helping

Retired four-star general David Petraeus told Fox News that Russian intelligence support likely explains “some of the accuracy of the missile and drone strikes.” He called on Trump to push forward with South Carolina Republican Sen. Lindsey Graham’s Russia sanctions legislation, which is supported by more than 90 senators. Iran’s foreign minister did not deny the deal, telling NBC’s “Meet the Press” that the Iran-Russia military partnership “is still there and will continue.”

An opposing coalition that actively assists in the killing of American troops deserves discussion at the negotiating table in Beijing.

China's role is less direct, but no less important.

Trump suddenly seems anxious to end the war as American casualties mount and Iran finds ways to retaliate

For years, U.S. officials have warned that Chinese firms have been feeding technology into Iran's missile and weapons programs. The Treasury Department has repeatedly sanctioned Chinese companies for supplying Tehran with missile-related materials.

Analysts have also noted Iran's interest in the Chinese CM-302 supersonic anti-ship missile — a weapon designed to threaten large naval vessels — which has appeared in Iranian procurement discussions. Chinese technology already runs through parts of Iran's missile infrastructure, from electronics to fuel components.

Denial and innocence are not the same thing.

China's energy weakness

Despite all of Beijing's public stances, the Iran war is costing China real money – and Xi knows it.

China built its manufacturing economy on reliable access to cheap energy, including crude oil at deep discounts from sanctioned countries. Iran has been a critical part of that equation. According to data from Kpler analytics and other monitoring firms, China imported roughly 1.38 million barrels per day of Iranian crude oil in 2025 — roughly 13% of its total seaborne oil imports, with almost all of it routed through shadowy middlemen to evade U.S. sanctions.

This stream now runs directly through a war zone. The Strait of Hormuz, through which about 20% of the world’s seaborne oil passes, is at the center of the conflict. As of this writing, the strait is virtually closed to tanker traffic. For Beijing, this means rising energy costs, supply chain disruptions, and the loss of one of its most important suppliers at a discount – all at the same time.

The shadow fleet is being dismantled

The pressure on Beijing is compounded by Washington’s growing crackdown on the “shadow fleet” — the network of dark-flagged tankers used to transport sanctioned Iranian and Russian crude oil to Chinese refineries. The Treasury Department’s Office of Foreign Assets Control has sanctioned dozens of shipping companies, ships and brokers linked to smuggling Iranian oil. Much of that crude ends up in China.

The war continues — and its consequences are hitting Beijing harder than Xi Jinping ever planned.

If sanctions enforcement continues to tighten — and there is every reason to apply stronger pressure now — the gray market that has allowed Beijing to secure cheap energy from sanctioned regimes will shrink. The bill for China’s energy dependence will come due.

Xi's connection

Xi publicly condemns the war. Privately, Chinese energy firms have pressured Tehran not to attack Qatar’s liquefied natural gas (LNG) facilities—because China gets about 28% of its LNG from Qatar. Defending Iran on the world stage while silently begging it not to burn your fuel supply is not a position of strength.

Xi cannot replace cheap Iranian oil overnight. He cannot rehabilitate a dead supreme leader. And he cannot afford a prolonged energy shock while his GDP growth target is at 4.5% – China’s lowest in more than three decades. Each of these pressures is a tool that Trump must use. This is not the time for diplomatic subtleties.

What should Trump demand?

The Beijing summit is not a trade negotiation. It is a strategic showdown, and Trump should go in knowing exactly what he wants.

First, Xi must use his documented influence over Moscow to stop Russian intelligence support for Iranian attacks on American forces. General Petraeus is right that sanctions on Russia are long overdue. But China’s economic exposure to this war gives Washington a second leverage—and Trump should use it at the same time.

Second, China must shut down the pipeline of missile technology to Tehran. Treasury Secretary Bessent is already considering pressuring Beijing over sanctioned oil purchases in his pre-summit talks with Vice Premier He Lifeng in Paris. This pressure should clearly extend to arms transfers—the CM-302 deal, propellant shipments, dual-use components. Washington is pursuing them all.

Third, Beijing’s restrictions on rare earth exports — imposed in retaliation for U.S. tariffs and designed to complicate American arms resupply — should be called what they are: economic warfare. The tight energy markets created by this conflict give Washington leverage it hasn’t had in years. Expanded U.S. LNG exports and Gulf energy cooperation are available — but only for real concessions, not diplomatic theater.

For years, US officials have warned that Chinese firms have introduced technology into Iran's missile and weapons programs.

The real question in Beijing

For years, Beijing methodically cultivated an authoritarian axis with Iran, Russia, and Venezuela as a bulwark against American power. Iran is now destabilized.

Venezuela is out of Beijing's orbit. Russia is exposed. The axis that gathered in Beijing last September full of confidence looks much more fragile today.

Xi will arrive at this summit hoping to stabilize the relationship and project strength on his soil. Trump should arrive knowing that the Iran war has given Washington something truly rare in the long history of US-China diplomacy.

Lever.

The card is in Washington's hand. The question is whether Trump will play it.

The Geopost