What role is China playing in the Iran war and how is it affected? — Inside Story

[0:00] China tells its ally Iran the Strait of Hormuz must be reopened. [0:05] International leaders have been visiting Beijing almost daily, [0:09] underlining its importance in the crisis. [0:11] So what's the impact of the Iran war on China and what role is it playing? [0:16] This is Inside Story. [0:34] Hello again, I'm James Bayes. [0:36] China has long been an ally of Iran, ties forged in times of peace rather than war. [0:42] Since the US and Israel began their attacks, Tehran's alliance with Beijing has been put to the test. [0:49] The conflict is existential for Iran, but for China it presents other challenges. [0:55] Like the rest of the world, it's exposed to global economic shocks. [0:59] But analysts say prudent planning means it's better prepared than most to cope for now. [1:04] On the diplomatic front, the picture is complicated. [1:07] Beijing may be an ally of Iran, but it's also trying to maintain good relations with Gulf states, [1:14] but they've been targeted by Iranian attacks. [1:17] And then there's US President Donald Trump, how to confront him while seeking to defuse the crisis [1:22] and before doing battle with him over trade. [1:26] So how is China and its international standing faring in the war? [1:30] We'll try to find out from our guests in just a moment. [1:32] But first, this report from Imran Olaqam. [1:35] The US and Israel's war on Iran has sent global oil and energy prices soaring. [1:42] And China, the world's second largest economy and major energy importer, [1:46] has a vested interest in how the war plays out. [1:50] China imports about 33% of its oil from the Middle East, [1:53] and 90% of Iranian crude oil exports are destined for China. [1:58] It's a big buyer of liquid natural gas as well, [2:01] and gets about 30% of its supply from the region. [2:04] Normally, all of that is shipped through the Strait of Hormuz. [2:08] But China's diplomatic and economic diversity [2:10] has protected it from feeling the full effects of wartime disruptions to energy supplies. [2:16] It also imports from Australia, Central Asia, Russia, parts of South America, and Africa. [2:22] And reports indicate that before the war, China already had a massive petroleum reserve. [2:28] Some analysts estimate that stockpiles may be up to 1.3 billion barrels. [2:32] Last year, China launched a direct freight railway to Iran. [2:37] The 3,150-kilometer line starts in western China [2:40] and passes through Kazakhstan, Uzbekistan, Turkmenistan, [2:45] before finally reaching the Iranian capital of Tehran. [2:48] Beijing's concerns go beyond the economy. [2:51] Earlier this month, it vetoed a UN Security Council resolution to reopen the Strait of Hormuz. [2:56] It doesn't even touch upon the root cause of the situation. [3:02] And then, in a very unbalanced manner, only accuse Iran. [3:09] And also, I want to emphasize, in particular, the timing is very bad. [3:13] We all heard what the U.S. president has said. [3:16] And again, this background, we think it is extremely dangerous [3:19] for the Security Council to adopt a resolution like this. [3:22] Some U.S. media are also reporting that Iran may have purchased Chinese spy satellites [3:28] to target Washington's military bases around the Middle East, [3:32] though Tehran denies the accusation. [3:34] U.S. President Donald Trump is scheduled to meet Chinese President Xi Jinping in Beijing in May. [3:39] But that meeting has already been delayed before. [3:43] The war is already dominating the agenda of that meeting, whenever it takes place. [3:48] Imran Al-Alan, Al Jazeera, for Inside Story. [3:51] It is a complex picture. [3:56] Let's get more detail from our guests who are joining us for today's Inside Story. [4:01] From Washington, D.C., Doug Bandau, a senior fellow at the Cato Institute. [4:07] In Shanghai, Sean Ryan, the founder and managing director of the China Market Research Group. [4:13] And in Boston, Nada Habibi, professor of practice in the economics of the Middle East at Brandeis University. [4:21] Thank you, all three of you, for joining us on the program. [4:24] Let me start with you, Sean, there in Shanghai and ask you about the impact the war has had on China. [4:30] Let's take it piece by piece, a cost-benefit analysis for China of the war, economically and politically. [4:38] Let's start with the economic position. [4:41] Has China done well out of this war or badly? [4:45] Well, it's great to see you again, James. [4:47] So first off, in the short term, China has definitely done better than any other nation in the world when it comes to the Iran-U.S. tension. [4:55] And the reason is that China, for about 10 years now, has been de-risking from the global energy supply chain. [5:03] So right now, they generate 2.5 terawatts of energy from solar and wind power. [5:10] They're also sitting on 28 billion barrels of oil in the dodging oil fields in the northern part of China. [5:16] So right now, James, 84 percent of China's energy comes from indigenous resources. [5:24] So, yes, they are importing LNG. [5:26] Yes, they are importing some oil from the Middle East. [5:30] But at the end of the day, they have a three to six month buffer on energy independence that other nations don't have right now. [5:37] So you're even starting to see the Philippines and Bongbong Marcos, the president there, who's a major China hawk, has actually said to Xi Jinping he would be willing to explore joint exploration of gas fields in the South China Sea again. [5:52] So what we've seen is China's economy is still going pretty well. [5:57] The numbers came out today that the economy grew 5 percent, fixed asset investment went up 6, 7 percent in the first quarter of 2026. [6:06] So at the end of the day, China is handling the tension better than any other nation because for 10, 20 years, it has been preparing for this day, preparing to be self-reliant on energy. [6:18] So, Doug, I mean, China seems to be doing better than most of the rest of the world. [6:28] Well, China has, as indicated, has worked very hard to try to reduce its dependence on foreign markets. [6:36] You know, and part of that is it recognized the danger of being reliant on Middle Eastern oil. [6:42] And certainly that was accelerated by the somewhat contentious relationship that has grown up between Washington and Beijing. [6:50] So if China is not happy about the conflict, it doesn't want to see energy prices rising, and it does worry about the long term, given the fact that this conflict, in theory, could go on for weeks or months more, we don't know. [7:08] Nevertheless, China can certainly be pleased with the results of its efforts at preparedness. [7:13] It still wants to see the strait opened. [7:16] It wants to see stability reestablished. [7:20] But it certainly is far better off than many of its Asian neighbors, such as the Philippines, and frankly, better off than Europe and a lot of other countries. [7:30] Nada, the thing that has changed, of course, is what's changed in the last week. [7:34] There was an Iranian blockade, but China had an exemption from that. [7:40] Now, there is a U.S. blockade, and China doesn't get a free pass anymore. [7:47] That is correct. [7:48] And as far as the cost of this war on China, we have to keep in mind that it's not just trading oil. [7:59] China is the largest trade partner of all countries around the Persian Gulf. [8:05] It has significant amount of trade with United Arab Emirates. [8:10] As an exporter with Saudi Arabia, it has large investments. [8:15] So all of those have been affected by this conflict because of the disruption. [8:21] And just as you mentioned, now we have a two-way blockade of trade with almost all countries around the Persian Gulf, around the Strait of Hormuz. [8:33] So I would say even though the impact on Chinese economies is small, nevertheless, China has also been adversely impacted. [8:42] Just keep in mind that China was buying Iranian oil to the magnitude of between 1 million to 1.5 million barrels per day at a very attractive discount. [8:55] Because Iran had to offer that discount in order to sell its oil to China under the current sanctioned regime that it faces. [9:04] And for strategic reasons, China is also concerned about the long-term impact of this conflict. [9:14] Sean, I mean, I think the reaction of China to the U.S. naval blockade is interesting. [9:21] The Chinese foreign ministry spokesman has been pretty tough on the U.S., saying that this is unacceptable. [9:28] But interestingly, the Chinese foreign minister, Wang Yi, has been on the phone in recent hours with his Iranian counterpart, Abbas Arachie, [9:37] saying that what they're doing, the Iranian blockade, is also unacceptable. [9:43] Yeah, so I think China doesn't want any type of a blockade whatsoever, and they want an end of the tension. [9:52] But I think what we've seen with Venezuela, what we've seen with Cuba, and now what we've seen with Iran is that China is not going to use its military to threaten back against the United States for blocking off its access to oil. [10:05] I mean, it got 2 percent of its oil from Venezuela, and it got about 15 percent of its oil from Iran. [10:11] So while in the short term, China is better off than other nations, you're starting to see the shortage of oil or the high prices are starting to hit the economy. [10:20] We have to remember, China manufactures 30 percent of the world's goods. [10:24] And so what we saw this month for the first time in 48 months was that factory gate prices went up. [10:30] You're starting to see some inflation, and that's going to hit into margins of companies that are already facing involution or what is called really depressed margins. [10:39] So I think China wants to end the conflict. [10:41] And just overall, from a macro standpoint, the 1973 oil crisis lasted for five months, and it took five, 10 years for the world economy to right itself. [10:52] We're now at about five, six weeks in Iran. [10:54] I think China is going to start to exert pressure on Iran, exert pressure on the United States to come to some sort of an extended ceasefire, because this will hit China's economy. [11:05] I just spoke with the CEO of a major coating company, and he said that he can't get petroleum-based products. [11:12] And that's going to hit the manufacturing sector in China, because there will be shortages of petroleum-based products, fertilizers, and that's going to have an impact, because that exports to the whole world, James. [11:23] I'd like to come back to the global economic position and how it affects China in a moment. [11:28] But Nada, first to you, because when we talk about the economic situation in the region, we are focusing a lot on China and Iran. [11:38] But China has very close relations with the Gulf countries as well. [11:43] Perhaps they're more important economically than Iran. [11:47] What would you say to that? [11:48] That is correct. [11:50] The volume of trade and investment of China in GCC countries, the countries like Saudi Arabia, United Arab Emirates, Qatar, Bahrain, Kuwait, and Oman, exceeds the volume of trade and investment with Iran, [12:07] especially because the sanctions have prevented the expansion of economic relations with Iran. [12:13] And China, however, has always tried to maintain a balance in its relations with Iran and GCC countries. [12:23] So it is not only consideration of U.S.-China relations that influences how China deals with this war, [12:32] but also that maintenance of balance between GCC countries and Iran. [12:39] Both of them are important, especially Iran's geographic position and its connection to the Belt and Road Initiative and the Central Asian countries. [12:50] Let's have a look, Doug, at the global economic situation and how bad it could get. [12:56] Inflation around the world, the global supply chain. [13:01] What is the worst case scenario for China? [13:05] Is it a global recession? [13:06] Yeah, a global recession would have an extraordinarily important impact on what is the world's most important trading nation. [13:17] China relies on exports. [13:19] China is a very important participant in the global marketplace all over the world. [13:24] So it is not just a question of Asia. [13:26] It's Europe. [13:27] It's even Latin America. [13:28] It's Africa. [13:30] So to the extent that other countries are having significant economic problems, and we see that with rationing in some countries, [13:37] some countries are having employees work at home. [13:40] They are wanting businesses to shut for a couple of days. [13:43] They're putting in odd, even license plate rationing in terms of driving. [13:48] I mean, we're seeing potentially extraordinary hardship. [13:51] Countries like Thailand, the Philippines, which was mentioned, European countries are already suffering because of losing Russian natural gas. [13:59] You know, that you see these companies, these countries are going to have a harder time buying Chinese products, harder time investing in China. [14:08] So this is a potential threat to China over the long term. [14:11] And that is a different issue than the rising energy prices for China itself. [14:16] And as Sean indicated, prices rise of manufactured goods in China. [14:21] That's going to have an impact on demand as well. [14:23] So, Sean, how bad could this get and how worried are they in where you are, Shanghai and also in Beijing? [14:33] Well, let's look at other places. [14:35] Doug mentioned Thailand. [14:36] I was just there last week to take a look at the impact of the oil crisis. [14:40] And what we found is that it's difficult to get taxis late at night because taxi drivers can only fill up their tanks in the morning. [14:48] They're unable to get gas at night. [14:50] And they're not willing to take long drives to, say, take guests all the way out to the beaches because they're scared they won't be able to fill up and get back. [14:58] We also found that a lot of hotels are saying they're down their number of tourists expected by 30 percent because the Europeans especially can't fly through the Middle East and connect into Thailand. [15:08] So you're starting to find problems are not just in China, but they're bigger problems in Southeast Asia. [15:14] You've seen that the U.S. dollar has collapsed against the R&B in the last couple of months. [15:20] It was at 7.3 R&B to one U.S. dollar. [15:24] It's now at 6.8. [15:25] So there's a lot of concerns globally about a financial crisis. [15:29] And I think one of the fears I have is that President Trump doesn't have the dignity, doesn't have the presidentialness to be able to work calmly with other nations that might be scared about a financial risk. [15:43] Because the stock markets keep going up. [15:45] It doesn't really make sense when the real economy, unemployment, is starting to really get hit hard. [15:51] I think investors and politicians are underestimating the deadly or depression-like attack that could hit the world. [16:00] Nada, let's look a little bit beyond economics now. [16:03] And it's interesting, just in the last few days, who has been in Beijing, the Spanish prime minister, the president of Vietnam, and the crown prince of Abu Dhabi. [16:16] It seems, and this has been a trend that we've seen continuing from the beginning of the year and throughout the war. [16:24] Everyone wants to go to Beijing. [16:26] Why? [16:26] Because China's influence and China's position matters. [16:33] And also, during these past few days, high-level representatives from Russia to affirm the continuation of cooperation of two countries in dealing with the crisis. [16:47] China has leverage over Iran to some extent. [16:50] And what could say, even if it is limited, it is more than any other country, perhaps at the same level as Russia. [17:00] So countries that realize the United States is not able to contain this or resolve it in the short run are trying to see if China can somehow intervene through its influence on Iran. [17:18] And we have seen that China has asked Iran to open the Hormuz. [17:24] They have expressed sympathy for Iran's position in the past few weeks. [17:30] They have condemned the invasion by U.S. and Israel. [17:35] And that sort of also gives them some position of influence on Iran that all of these countries hope that China can exploit. [17:47] Also, I think, as far as many of these countries are concerned, they don't want to see an outcome which involves a complete defeat of Iran. [17:59] So while they want China to help open the Hormuz, they also want China to have an influence on the course of events in a way that this ends up perhaps with a less damaging impact on Iran and the Iranian regime. [18:17] If you look, Doug, at the people who visited Beijing during the year, you have the prime minister of Canada, the prime minister of the U.K., the German chancellor, the Spanish prime minister. [18:29] Many of these are countries that would have been considered close allies of the U.S. [18:34] China now presenting itself as a champion of the international order, a champion of stability. [18:41] Should people be worried where you are in D.C.? [18:46] Well, it's certainly a problem, and it's largely self-created. [18:49] You know, this president has, shall we say, a unique way of dealing with not only adversaries but friends. [18:57] And it's very hard for those friends to remain friends. [19:00] The latest spat is he's mad at the Italian prime minister who defended the pope. [19:05] And if there's one thing an Italian prime minister is going to do, it's going to be to defend the pope. [19:11] The president doesn't care, and he apparently doesn't believe there's any cost in this, but he's found the Europeans don't want to help him in terms of opening the strait. [19:21] And I think this has given a very real opportunity for China to present itself as a stable international actor, more stable than the United States, while not able to replace the U.S. in the international order. [19:36] Nevertheless, it can play a very positive role. [19:39] And even for at least past American friends, they're desperate to find stability in the international order. [19:47] And in a case like the Middle East, they want someone to help promote peace, since the president himself seems unable to end a war that he apparently thought was otherwise going to be over in just a couple of days. [19:58] Sean, there have been allegations and reports and no confirmation that China has been helping Iran during this war, claims that American intelligence agencies believe that there's been intelligence support, satellite intelligence information given by Beijing to Tehran. [20:21] And also recent claims that missiles, including shoulder-fired missiles, those man pads that you can use to take down planes, may either have been sent or be on their way. [20:33] What is the response in China to these claims? [20:36] So I don't have any inside knowledge of whether or not China is aiding Iran militarily, but I tend to doubt it. [20:46] And it comes back to what your other guest said. [20:48] China has decent relations with Iran. [20:51] They've basically been Iran's lifeline by buying almost 100% of their oil. [20:56] But at the end of the day, China wants to have good relations with Qatar, Saudi Arabia, Oman, UAE, and the other Gulf nations. [21:04] I mean, over the last three years, I've spent a lot of time in the Middle East looking at doing business deals. [21:10] I have never been to Iran because Iran is just not considered an investment destination, whether by sanctions or politics by Chinese. [21:18] I think a lot of Americans lumped by Iran and China together as close allies. [21:23] I don't think they're as close as Americans think. [21:26] I think that they've been pushed together out of a matter of survival because over the last decade, the United States under Biden and Trump has been seen in China as trying to destabilize and push for regime overthrow in Beijing. [21:39] And so I think the Chinese have gotten closer with Russia, with Iran, because they're trying to survive, not necessarily because they're close allies. [21:48] So I don't know. I don't have any inside knowledge on the military, but I think we shouldn't forget how close China is to other Middle Eastern nations. [21:57] Doug, does it really matter, though, whether the allegations are true? [22:02] Because already President Trump has said if they are true and he believes they're true, he's going to go back to tariffs, his favourite weapon with China, with a 50% tariff. [22:12] And the important thing in all this is there is supposed to be, it's already been postponed once, this very key summit between President Xi and President Trump. [22:22] The current date as we have it is the 14th and 15th of May. So it's coming up very fast. [22:28] Well, from President Trump's standpoint, it's very important to keep the relationship on a stable level. [22:39] My bet is that he's going to believe what he wants to believe, which is that President Xi is not doing this. [22:45] You know, if I had to guess, I mean, I also don't have any knowledge from intelligence agencies. [22:50] If I had to guess, China probably is providing intelligence support because that's very hard to prove. [22:55] Probably not providing weapons because that would be much more dangerous in terms of an escalation into the conflict. [23:03] But from a Chinese standpoint, of course, the U.S. is threatening to go to war over Taiwan with China. [23:08] So China, I don't think, would feel reluctant to provide aid if it thought it could do so without harm to the relationship. [23:15] But China also wants a stable relationship with the U.S. [23:18] So I think the summit's going to go forward and it's going to go forward based upon President Xi's promise [23:24] that China is not aiding Iran. [23:27] And I think the U.S. is going to go along on that promise. [23:31] Nader, how important is this summit being seen around the world and here in the Middle East? [23:37] I mean, is it a key event on the horizon? [23:42] The meeting between President Trump and President Xi, I think it is important. [23:48] But the immediate concern of the GCC countries and Iran is just the coming weeks, not to wait till middle of May. [24:00] So I think that given the course of events in the region and how rapidly they are developing is further off. [24:09] Perhaps these countries are hopeful that some kind of resolution, at least to the blockade of the Strait of Hormuz, [24:19] can be achieved much earlier than that. [24:23] The real issue, the more concerning issue for the countries is the negotiations between Iran and the United States. [24:33] So the impact of China in the course of events in the coming weeks, I think it depends on the leverage that China might use on Iran [24:44] and how it's going to look at the conflict and what it's going to ask Iran to do in order to at least address the blockade of Hormuz. [24:56] Aside from blockade of Hormuz, we have had conflicts in the Middle East continuously. [25:01] And most of the time, the world is not concerned with them. [25:04] They open up, they end, they end up in ceasefire. [25:09] This could have been one of those, but Iran had no choice but to resort to this very exceptional strategy of focusing on hormones, [25:19] which has affected the entire global economy. [25:23] OK, I'd like your take, Sean, on what you think China could do to end the current conflict and lift those two naval blockades. [25:36] I mean, China has influence with Iran. [25:39] China is also pretty close to Pakistan, which, of course, is the mediator in the current process. [25:46] Pakistan has good relations with China and good relations with the United States. [25:50] Well, China is not a puppet master of Iran. [25:55] So I think that they can exert pressure on Iran to try to agree to a ceasefire, agree to 10 points to come up with peace. [26:02] But I think the wild card that we haven't mentioned in this is Israel. [26:06] So if Israel continues to bomb Lebanon, if Israel continues to threaten Iran, [26:12] and, you know, I think that Netanyahu is intentionally trying to stop the ceasefire, [26:19] then I don't think China is going to have any power to exert onto Iran, [26:26] because I think Iran is going to be worried that Israel is going to try to take them out completely. [26:30] So I think there are limits to what China can actually do. [26:35] Even though that they want to have peace, I think the wild card is Netanyahu. [26:40] Sean Ryan, Doug Bando, and Nada Habibi, thank you for joining us today on Inside Story. [26:46] For more on this subject and all aspects of the current crisis, [26:49] you'll find analysis and context at aljazeera.com. [26:53] We'd love to hear your viewpoint. [26:54] Go to our Facebook page. [26:55] That's facebook.com forward slash AJ Inside Story. [26:59] Or you can look for us on X. [27:00] Tag us with your comments at AJ Inside Story. [27:03] For now, that's it from me, James Bayes, and all the team here. [27:06] Al Jazeera's coverage continues in a moment. [27:09] Stay tuned.