China’s Reaction to the Israel-Iran Conflict
Amid intensifying conflict between Iran and Israel, China issued a public call for calm on June 16, warning of broader instability and potential disruption to critical oil flows. “We urge all parties to immediately take measures to cool down the tensions,” said a Chinese Foreign Ministry spokesperson, adding that “force cannot bring lasting peace.” These words, while diplomatic, reflect urgent self-interest. China imports 1.7–1.8 million barrels per day (bpd) of Iranian oil—roughly 10–13% of its total crude intake. This supply, often rerouted through sanction-busting channels and sold at a discount, helps power China’s smaller refineries and supports stable fuel pricing domestically.
Equally important, much of this oil is paid for in renminbi, aligning with Beijing’s broader goal of reducing reliance on the U.S. dollar in global energy trade. Any major disruption from conflict or sanctions escalation threatens not just China’s economic stability, but its financial ambitions.
Beijing’s response is also part of a larger strategy: portraying itself as a neutral, stabilizing power in regions historically dominated by the U.S. With oil markets spiking 7% during the initial escalations, China has simultaneously accelerated talks on alternative supply routes—including a 50 bcm/year gas pipeline deal with Russia—signaling it is both guarding its economic base and seeking a greater global leadership role.
Strategic Stability, Tactical Adjustments – 60% Likelihood (Base Case)
Tensions between Iran and Israel remain high but stop short of full-blown war. Iranian oil exports to China—currently 1.7–1.8 million barrels per day, or 10–13% of China’s crude imports—continue with some logistical challenges and rising insurance costs. China manages these risks through “dark fleet” tankers, stockpiling, and expanded reliance on independent refiners. Its diplomatic posture—firmly calling for de-escalation while remaining non-committal—earns modest international acknowledgment without shifting the balance of power. Oil prices remain volatile but don’t spike long-term. Simultaneously, Beijing advances quieter strategies: securing additional barrels from Russia and Central Asia, and deepening yuan-settled oil trade. This scenario sees China preserving energy access and economic stability while avoiding deeper entanglement.
Diplomatic Gain, Economic Advantage – 20% Likelihood (Upside Case)
China successfully helps lower regional tensions—either through backchannel diplomacy or coordinated multilateral dialogue. It gains recognition as a neutral broker, strengthening its credibility in Middle East affairs. Iranian oil exports to China stabilize quickly, and discounted barrels continue flowing with minimal disruption. The renminbi gains further traction in energy trade, expanding China’s influence over global payment norms. The Power of Siberia-2 pipeline deal with Russia—expected to supply 50 bcm/year—is finalized ahead of schedule, reducing China’s long-term dependence on volatile maritime oil routes. In this scenario, China emerges both stronger diplomatically and more secure economically.
Energy Disruption, Strategic Setback – 20% Likelihood (Downside Case)
The conflict escalates dramatically—through direct strikes on Iran’s energy assets or blockages in key shipping routes like the Strait of Hormuz. Iranian crude flows to China collapse or become too risky, exposing China’s dependency on a politically fragile supplier. The U.S. may tighten secondary sanctions, targeting Chinese refiners and financial entities, further straining the oil trade. Fuel shortages drive up inflation, pressuring Chinese economic performance. Diplomatic efforts falter or are perceived as biased, damaging China’s global reputation. The push to expand yuan-based oil payments stalls amid financial and geopolitical instability. China is left scrambling to secure alternative supplies at higher costs while reassessing its Middle East strategy.
