China's Quiet Gains During US-Israel War On Iran

Authored by Hamza Zaman via RealClearDefense,

The Iran conflict continues to protract despite President Trump’s assumption of a quick and easy victory.

The goals of regime change and the decimation of the Iranian ballistic missile program remain unfulfilled, and the closure of the Strait of Hormuz further adds to the strategic qualms of the Western powers.

The GCC states are also facing significant damage to their services industry, transport infrastructure and energy sector.

While both sides suffer great losses in this protracted conflict, America’s biggest geopolitical rival – China – seems to be gaining palpable economic and strategic benefits from the ongoing conflict in the Middle East.

Challenges to Petrodollar and Yuan’s Rise against U.S. Dollar

Iranian strikes on GCC energy infrastructure, in retaliation for Israeli strikes on Iranian oil refineries and gas infrastructure, sent shockwaves through global energy supply chains. This resulted in supply chain disruptions, shortages, rationing and price hikes. These energy supplies are traded in U.S. dollars and constitute a discernible source of demand for the U.S. dollar. The closure of the Strait of Hormuz further amplifies supply chain disruption, forcing buyers to choose alternative sources, including Russia. Iran’s announcement of a safe passage for oil tankers in exchange for payment in Yuan is being hailed as a direct assault on the primacy of the U.S. dollar and the petrodollar system.

The outcome of these events is the diminution of the U.S. dollar's hegemony and the rise of the Chinese Yuan. China continues to purchase discounted oil from Iran in Yuan, and the procurement of Russian oil will also be in non-USD denominations. The fall of the U.S. dollar will accentuate China’s rise as a major competitor of the U.S.. China is already vying for a common BRICS currency, and its efforts will intensify in the future, as the U.S. dollar continues to weaken. The war in the Middle East presents an opportunity for the Chinese Yuan to accentuate China’s geoeconomic rise.

Observing and Analyzing American Military Activities

China’s observation of Operation Epic Fury provides its military with an opportunity to gather ample data on American military tactics and strategies. It also provides China with insight into the capabilities and limitations of American weapon systems. The downing of American fighter jets, including F-15E Strike Eagles, KC-135 Stratotanker, F-35A and Q-9 Reapers, as well as the destruction of radars and limitations of American air defense systems in the Middle East, is an opportunity for the Chinese military to evaluate its military arsenal and reassess its own capabilities and limitations vis-à-vis American military prowess.

With the help of artificial intelligence and machine learning, the Chinese military would analyze these weapon systems and military strategies and create real-life war-like simulations for the Chinese military with precise data. The destruction and limitation of the American military assets will also persuade global vendors to pursue Chinese combat-tested alternatives from the May 2025 Pakistan-India War, thus augmenting Chinese defense exports.  

Strengthening Rare Earth Leverage against American Military Industrial Complex

The involvement of the U.S. in another war in the Middle East has the American military industrial complex up and running. Given the intense bombardment, fast-paced depletion of its air defence interceptors and the destruction of radars, the U.S. is expected to swiftly replenish its arsenal. However, the U.S. reliance on China for rare earth minerals – essential for the American military industrial complex – indicates that the U.S. strategic autonomy is compromised. In response to the Trump administration’s tariff war and ban on advanced chips exports to China, China meticulously weaponized rare earth minerals, effectively defying the actions of the Trump administration. In the wake of the Iran conflict, the Trump administration’s dependence on China for its rare earth needs magnifies, actively putting China in an advantageous position.

The Chinese government can tactfully play its cards, forcing the U.S. to continue the exports of advanced chips to China as well as completely abolish the exorbitant tariffs on Chinese products.

Strategic Space in the Indo-Pacific

In order to replace the lost batteries and interceptors, the U.S. decided to transfer its Terminal High Altitude Area Defense (THAAD) system from the Korean Peninsula to the Middle East. Additionally, the U.S. moved 2500 marines and USS Tripoli, an amphibious assault ship, stationed in Japan, to the Middle East, with the reported plan of the takeover of Kharg Island – Iran’s predominant energy export hub. This, however, aggravates the security apprehensions of the American allies in the Indo-Pacific, especially South Korea and Japan. Given the Trump administration’s diversion of resources, these states will have to reconfigure their security policies and adopt a more amicable approach towards China. The Chinese government will welcome such developments, perceiving them as a strategic space in the Indo-Pacific. In the wake of reduced American military presence in the region, China will be in a better position to secure its strategic interests along the Strait of Malacca, consolidating its supply chain.

The longer the conflict protracts, the deeper the U.S. will be engulfed in another forever war. This may create temporary energy disruptions for China as well as complications for its BRI program. However, the reoriented focus of the U.S. on military campaigns will allow China to continue its economic rise, backed by innovation and advanced cutting-edge technologies. The stature of China will continue to be amplified as a non-interventionist state, believing in regional connectivity and shared economic growth. This scenario envisages more states swaying to the Chinese camp in the coming years, broadening the scope of BRICS+ and a common BRICS currency.

Hamza Zaman holds an M.Phil. degree in International Relations from Quaid-i-Azam University, Islamabad, Pakistan. He works as an Assistant Research Associate at the Islamabad Policy Research Institute, Pakistan.