China breathes easier with Iran deescalation but challenges linger

Hi readers,

Beijing is breathing easier as signs emerge of deescalation between the United States and Iran, assuaging fears of a confrontation that could have disrupted Gulf stability and China’s energy supplies. Tensions between Iran and the United States appeared to ease Thursday after US personnel began returning to the Al Udeid Air Base in Qatar following a partial evacuation on Wednesday.

As the United States and Iran backed away from military escalation, Chinese Foreign Minister Wang Yi spoke Thursday with his Iranian counterpart, Abbas Araghchi. But even as diplomacy channels open, the crisis between Trump and Iran, as well as the challenges that lie ahead for the regime, poses a problem for China.

Let’s unpack,

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Beijing — which has much to lose from prolonged unrest and military escalation that would further weaken the regime in Tehran — is no doubt relieved that there are signs of easing tension between the United States and Iran. Araghchi emphasized to Wang that "the door to dialogue remains open" and expressed hope that China would "play a greater role in regional peace and stability." Wang, in turn, warned against foreign interference and stressed that China hopes all parties will "exercise restraint." He added that "China is willing to play a constructive role."

Why China is relieved

🛢️ Iran is a supplier of heavily discounted crude to Chinese refiners and an important node in longer-term Belt and Road connectivity linking China to the Middle East and Europe. Chinese firms have invested in Iranian energy and infrastructure despite US sanctions, while Beijing has used the relationship to demonstrate its ability to shield partners diplomatically at the UN and elsewhere.

China buys at least around 80% of Iran's oil exports, according to data from Kpler. This business is done largely through small, independent refiners that trade off the books to skirt US sanctions. Beijing has also provided political backing to Iran in international forums. When France, Germany and the UK moved to trigger UN sanctions on Iran, for example, China (along with Russia) sided with Iran in resisting the move.

📉 There is also the risk of reputational damage for China. Following the US’ dramatic military ouster of Venezuelan President Nicolas Maduro last month, Beijing is likely wary of any further setbacks to its network of global partners.

💭 Expert opinion: Under Maduro, Caracas became one of China’s closest partners in Latin America; with Iran, the relationship is even tighter. "There’s a valid concern in Beijing that the unrest in Iran will further damage their reputation as a global partner after what’s happened in Syria [Assad ouster] and Venezuela, two governments that were quite close with China," said Grant Rumley, senior fellow at the Washington Institute for Near East Policy.

"China is almost certainly Iran’s most important external backer. Beijing is a reliable customer of Iranian oil, provides diplomatic cover for Iranian positions and supplies the regime with much of the surveillance technology it uses to stay in power," said Rumley. 

The specter of future instability in the form of more protests or an Israeli or US attack should concern China. Beijing would lose a close ally and would see its BRI agenda challenged. 

But it's not an insurmountable scenario for China. “If the regime were to collapse, Chinese officials believe they could negotiate a similar arrangement with whichever government followed the regime,” Rumley argued. That can be done, he added, by offering the economic and political support new governments need. “They’d follow the Syria playbook, where they lead with economic incentives, seek agreement on select issues and gradually try to regain access and influence.”

Yet at the same time, China has the upper hand in its relationship with Iran. "There’s an asymmetry in the China-Iran relationship that benefits Beijing greatly," Rumley said. "Iran is not nearly as important to China as China is to Iran. The current arrangement — where China provides dual-use support for Iran’s missile and drone programs in exchange for below-market oil — is one China is perfectly happy with. China has other sources of oil it can turn to, both in the region and beyond.”

While China is Iran's primary oil customer, Iranian crude makes up roughly 13% of China's total oil imports. That is a meaningful share, but China's energy supplies are more heavily anchored in other producers, particularly Russia and Saudi Arabia, which together supply a much larger portion of Beijing's imports, making up an estimated 30% of China's oil imports combined. 

Historical context: China has historically managed to keep its ties with Iran steady even during major disruptions. Diplomatic relations were established in 1971 under the shah and relations steadily warmed. The warming relationship culminated in a state visit to Iran by Chinese Premier and Chinese Communist Party Chairman Hua Guofeng in 1978. Less than a year after that visit, though, the shah fell and was replaced by Ayatollah Ruhollah Khomeini. But China was largely undeterred and resumed high-level engagement shortly after. China appointed a new ambassador in 1980 and deepened cooperation with Iran during the Iraq-Iran war as Tehran's ties with the West frayed. One of Ayatollah Ali Khamenei's last known trips outside of Iran was to China in 1989, just before becoming supreme leader. 

Ayatollah Ali Khamenei on the Great Wall of China in May 1989. Photo from X posted by China in Pictures (@tongbingxue on X)

Beijing's behavior in other Middle East contexts might provide good examples of how China manages ties during transitions. In Syria, following the fall of Bashar al-Assad — whom China maintained a lukewarm relationship with — China took its time to evaluate the new regime but has slowly opened itself up to the new Syrian government. A Syrian delegation led by Foreign Minister Asaad al‑Shibani visited Beijing in mid-November to meet with Wang Yi. China also plans to reopen its embassy in Damascus in early 2026, a senior Syrian official told Turkey’s Anadolu news agency. 

Our take: With military escalation spared, China has averted a crisis for the time being. While a weakened Iran is not ideal for China, Beijing can adjust and find alternatives. In the short term, instability risks supply disruptions, higher energy prices and the erosion of a partner willing to openly defy Washington, all of which complicates Chinese planning. Over the medium to long term, however, China’s diversified energy imports and its willingness to work with whoever is in power give it room to rebuild influence should the status quo change in Tehran.

Photo of the week

The shah of Iran with Chinese Premier Hua Guofeng in Tehran in 1978. (From Bill Figueroa/@IranChinaGuy on X)

Deals and visits ✈️

• China warns against 'interference' in Iran
• Egypt finalizes deal with China’s Sungrow and Norway’s Scatec for two renewable energy projects
• Chinese drone company completes its first commercial logistics flight in Middle East
• China’s Shenzhen to host fifth International Dubai Business Forum
• Morocco awards phosphate project contract to Chinese construction company
• Chinese battery company opens center in Riyadh
• Consortium led by Chinese water and wastewater company wins contract for wastewater treatment project in Saudi Arabia
• Trump threatens tariffs on those doing business with Iran
• South Africa hosts China, UAE, Iran and Egypt for BRICS naval drill 

What we are reading​​​

• US blows up China’s Latin America ambitions with Maduro ouster: WSJ
• China’s 'artificial sun' just broke a fusion limit scientists thought was unbreakable: Science Daily
• China announces record trade surplus as its exports flood world markets: NYT