Beijing's Blind Spot: The Hidden Cost of America's Strike on Iran

On Saturday, the United States (US) and Israel launched a co-ordinated military campaign against Iran, codenamed Operation Epic Fury. Missiles struck at least nine Iranian cities, and the death of Iran's Supreme Leader was confirmed shortly after. The assault followed weeks of stalled negotiations aimed at curbing Tehran’s nuclear programme, alongside increasingly direct warnings from Washington that military force would be used if diplomacy failed.

The immediate market response was predictable. The price of Brent crude oil climbed sharply from $72.87 to nearly $80 a barrel. But the price spike reflects more than short-term panic. It reflects structural risk centred on the Strait of Hormuz, the narrow passage between Iran and Oman that links the Persian Gulf to the open ocean, and the most critical oil transit corridor in the world.

Roughly one in three barrels of globally traded crude passes through the Strait. For Asia, the dependence is even more acute. Nearly half of the region's crude imports transit Hormuz, and close to 90% of the oil moving through the waterway ultimately lands in Asian markets.

China sits at the centre of this exposure. For China, approximately 50% of its total oil imports move through this narrow maritime chokepoint. China is the world's largest crude importer and second-largest consumer.

Significantly, despite Western sanctions, China purchases over 80% of all Iranian oil exported globally. This accounted for 13.4% of all China’s seaborne crude imports in 2025.

Since Western sanctions cut Iran off from most of its buyers in 2012, China has been able to secure Iranian crude at a persistent discount, typically $8 to $10 below market price per barrel. To sustain these flows under sanctions, a parallel logistics and financial architecture took shape. A “dark” fleet of tankers moved Iranian oil while masking its origin, routing cargo through smaller independent operators – known as “teapot” refineries – on China's east coast. Payments were settled largely in renminbi through China's cross-border interbank payment system (CIPS), bypassing Western banking infrastructure entirely. This system created a lifeline of revenue for Iran, and for China, it meant a reliable supply of deeply discounted crude.

Although the Strait of Hormuz is not formally closed, all commercial operators, major oil companies, and international insurers have effectively withdrawn from the corridor, all except for a handful of Iranian and Chinese-flagged tankers that have attempted passage.

Compounding China's predicament is the simultaneous loss of reliable access to another discounted source: China previously imported roughly 4% of its oil from Venezuela, a supplier now under American control. Two of China's cheapest supply lines have been compromised within months of each other, collectively making up about 17% of China’s total crude imports.

China is not without alternatives. It maintains substantial trade relationships with Saudi Arabia, Russia, and a range of African and South American oil-producing nations. These will absorb some of the shortfall. But it cannot absorb the price, which analysts estimate could reach around $108 per barrel should Hormuz shut. China also has significant crude stockpiles.

For China, the adjustment will ripple outward. Higher crude input costs will compress refinery margins and push up petrochemical feedstock prices. Industrial output costs will rise. The inflationary pressure, modest at first, will compound across supply chains.