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Introduction
The 12‑day war that erupted on 13 June 2025 between the United States, Israel and Iran caused immediate volatility across global markets. Oil prices spiked more than 13 percent intraday and investors fled into safe‑haven assets such as the U.S. dollar and gold. While the spotlight was on the combatants, China quietly played a pivotal role in shaping market reactions. As the world’s largest crude importer and a key buyer of Iranian oil, Beijing’s policies and actions influence everything from oil prices to currency markets. Understanding China’s energy dependence, diplomatic manoeuvres and financial market behaviour is essential for grasping how the conflict affects global markets.
China’s Energy Dependence and Strategic Reserves
China’s fast‑growing economy runs on imported energy. In 2025 the country consumed about 17 million barrels per day (bpd) of oil, and roughly half of its 10.4 million bpd of crude imports came from the Middle East. Tehran’s economy depends on these flows; Beijing purchased more than 80 % of Iran’s shipped oil in 2025, at a discount, representing 13.5 % of all the oil China imported by sea. Over 43 % of China’s crude imports originate from the Middle East , leaving it vulnerable to disruptions from the Strait of Hormuz or other regional chokepoints.
China has been building a large buffer against supply shocks. Analysts estimate it added about 800 000 bpd to storage in 2025 and that total inventories could exceed 1.3 billion barrels - more than four months of imports. Beijing’s crude stockpiling is opaque but historically slows when oil prices rise. Should the war trigger an extreme price spike, China could reduce purchases or release some inventories , easing pressure on global supplies. Conversely, if Chinese buying remains strong, the additional demand could amplify oil‑price surges.
Diplomatic Position: Condemnations Without Hard Power
Despite its deep economic ties to Tehran, China stayed on the diplomatic sidelines during the conflict. Beijing urged all parties to exercise restraint and resolve differences through dialogue. It criticised U.S. and Israeli strikes during the war but did not provide material support to Iran and has previously supported UN‑led economic sanctions. Analysts note that China confines its response to condemnatory statements and multilateral appeals - blaming Israel while ignoring Iran’s violations - without offering arms or aid.
Even so, China remains Iran’s economic lifeline. The Foundation for Defense of Democracies observes that Beijing purchases roughly 90 % of Tehran’s crude oil and therefore finances nearly 20 % of Iran’s gross domestic product. Yet China has refused to curb these purchases, preferring to shift blame to Israel and the United States while presenting itself as a peace broker. Chinese officials have repeatedly called on the United States and other countries with influence over Israel to resolve the crisis, demonstrating Beijing’s own limited ability or willingness to shape events.
Vulnerabilities: Energy Security and Shipping Lanes
China’s heavy reliance on Middle‑Eastern energy exposes it to geopolitical risk. Forbes notes that this dependency may make China one of the biggest losers in an Israeli–Iranian conflict. Over 43 % of Chinese crude imports come from the region and most of that oil transits narrow maritime chokepoints such as the Strait of Hormuz or the Malacca Strait. China refers to this vulnerability as its “Malacca Dilemma”. Any significant disruption - whether through Iranian attacks on Gulf shipping or U.S. sanctions - could choke off supply and roil domestic markets.
The Chatham House think tank explains that Beijing publicly opposes Iran’s pursuit of nuclear weapons because a nuclear‑armed Iran could trigger a regional war that blocks shipping lanes and disrupt China’s oil imports from the Gulf. The fear of losing access to Gulf energy helps explain why China might tolerate limited U.S.–Israel strikes on Iran if they lead to a diplomatic breakthrough on the nuclear issue. Beijing wants to preserve stability in the Middle East while maintaining its long‑term partnership with Tehran.
Market Reactions Inside China
Equities
Chinese equity markets reacted quickly to the Israeli strikes on Iran. On 13 June 2025, the day Israel launched large‑scale strikes, the Shanghai Composite fell 0.75 % and the CSI 300 dropped 0.72 %. The smaller Shenzhen index slipped 1.32 %, and the start‑up board ChiNext was down 1.13 %. Hong Kong’s Hang Seng index declined 0.59 %, while the Hang Seng China Enterprises index lost 0.85 %. Investors dumped risky assets amid fears the conflict could widen and disrupt energy flows.
However, defensive sectors outperformed. The defense sub‑index in China closed up 1.7 %, and oil and gas shares jumped 2.02 %. Gold miners such as Western Region Gold and Shandong Gold Mining gained over 2 % as investors sought safe‑haven exposure. This rotation reflects the common pattern of capital flowing into energy, defense and precious‑metal stocks when geopolitical risks rise.
Currency and Safe‑Haven Assets
The war and surging oil prices spurred demand for the U.S. dollar and gold. The onshore yuan weakened 0.14 % to about 7.1815 per dollar as investors bought dollars. Safe‑haven demand also pushed gold prices near one‑month highs; China’s net gold imports via Hong Kong rose 68.7 % in January, reflecting increased bullion purchases. To keep its currency from rising too quickly, China’s central bank later scrapped a 20 % reserve requirement on foreign‑exchange forward contracts, making it cheaper for banks and exporters to buy dollars. Such measures aim to maintain financial stability amid volatile global conditions.
How China Shapes Global Market Reactions
- Oil pricing and supply - China’s decision to continue buying Iranian crude or tap its vast stockpiles has an outsized influence on global oil prices. If Beijing slows purchases or releases oil from storage, supply pressure eases; if it keeps buying aggressively, price spikes may be accentuated. Because China bought more than 80 % of Iran’s shipped oil in 2025 , any change in its procurement strategy directly affects Iran’s revenue and global supply dynamics.
- Energy investment and diplomacy – Beijing supports Iran’s membership in BRICS+ and the Shanghai Cooperation Organisation, helping Tehran break out of diplomatic isolation. At the same time, China aims to maintain stable relations with Gulf states like Saudi Arabia, which provide a large share of its oil. This balancing act constrains China’s ability to take sides militarily but encourages it to seek diplomatic solutions that calm markets.
- Currency management – By adjusting foreign‑exchange policies (such as scrapping reserve requirements for forward contracts) and encouraging dollar buying, China can influence the yuan’s value. A weaker yuan makes Chinese exports more competitive but can also export inflation and affect commodity prices.
- Domestic market sentiment – Chinese equity markets act as a barometer of risk sentiment in Asia. Sharp sell‑offs in mainland and Hong Kong markets during the conflict signaled rising investor anxiety, while gains in defense and energy stocks underscored expectations of higher military spending and oil prices.
Conclusion
The USA–Israel–Iran war has underscored the outsized role China plays in market reactions. As Iran’s primary oil customer and a major Middle Eastern stakeholder, Beijing’s decisions on oil procurement, strategic reserves and diplomacy significantly influence crude prices and risk premia. Its stockpiling behaviour and currency management provide cushions against supply shocks but also create uncertainty about future demand. Chinese equity markets respond swiftly to geopolitical events, with capital rotating into defense, energy and gold stocks while broader indices sell off . Meanwhile, Beijing’s diplomatic posture - calling for restraint but refusing to curb its financial support for Iran - reveals its limited leverage but deep economic interests.
For investors, monitoring China’s actions is essential to gauge the depth and duration of market turmoil. A prolonged conflict that disrupts shipping lanes could severely impact China’s energy security and global trade. Conversely, a diplomatic resolution supported by Beijing might stabilise markets. In an interconnected world where China is both a consumer and an influencer of energy flows, its role will continue to shape market reactions to Middle‑Eastern escalations.
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