China and the Iran War

There is no doubt that the February 28, 2026 attacks on Iran by the United States and Israel were carried out as a result of the pressure exerted by Prime Minister Benjamin Netanyahu of Israel. He persuaded Washington to use force to cripple Iran and set back that country's nuclear program. Israel saw Iran's nuclear activities as an existential threat. The Israelis believed that if Iran did develop a nuclear bomb, it will use it to destroy the Jewish state. While that was the reason for the use of enormous force to set back Iran, no thought was given either to work out how the war would end and what would be its effects on the geographic area of which Iran was a part. It was not only the Middle East that was affected but also most of South and East Asia, in particular the eastern part of the Continent. Poor people in poor countries were deeply affected. Several western newspapers carried stories of the way the poor in poor countries were suffering.

China, the largest Asian economy, was affected both negatively and positively. By and large, it emerged as a winner in the war against Iran. While the shocks to the global energy system resulting from the war and the closure of the Strait of Hormuz have sent some countries into a tailspin, with higher prices for energy, fertilizer and chemicals, the effect on China has been largely positive. The country has mostly managed to escape the kind of cascading economic and political effects that bedeviled many other nations. The reason China has escaped the worst consequences of the Iran war is its large oil and gas reserves. The country is also better managed both politically and economically. The Asia Group published a report on June 30 that reinforced the country's position as a competitive place for manufacturing.

The disruptions spurred by the US-Israeli war on Iran have helped China to advertise itself as a stable partner of countries outside its borders, advancing itself as a dependent source of clean energy technology like solar panels, batteries and electric vehicles. It dominates the world in these industries. "It is hard not to come to the conclusion that China is a winner here," said Kurt Campbell, the chairman and co-founder of the Asia Group, a research institution, and deputy secretary of state in the Biden administration.

As noted in a long story carried a few months ago by news magazine The Economist, Pakistan has developed an impressive solar energy based economy and social order. The author of the story took the motorway from Lahore to Islamabad and noticed that villages on either side of the road were using solar energy to power their houses and run their tubewells.

Asia, the world's manufacturing hub, is greatly dependent on the Middle East for energy and industrial products. The continent sources 80 per cent of its oil and 90 per cent of its natural gas through the Strait of Hormuz, a waterway that hugs the territory of Iran. The conservative rulers of Iran who are in office now because of the killing by the American and Israeli bombs of most of the senior leadership of Iran have maintained the approach of the predecessor regime. Trump celebrated their deaths as "regime change" but that did not happen. The new leadership that has taken office is more radical than those that were killed by the bombing. One of the threatened actions is to close the Strait of Hormuz through which much oil and gas consumed in Asia passes.

The impact of the war is not limited to energy products. The Iran war has also impeded the production and movement of certain products – like naphtha, used to make plastics and chemicals; helium, used in semiconductor factories and MRI machines; and sulfur which is needed to refine copper, nickel and critical minerals needed in electric vehicles batteries and electric systems. China has managed to avoid the major consequences of the war in Iran by drawing on its reserves and imposing export restrictions and quotas on its oil refineries. Even then China's imports declined by 30 per cent in May 2026.

Recent supply chain disruptions pose much more significant problems for other Asian countries according to the Asia Group report cited above. It used AI to model numerous scenarios for how governments, companies and other players in the economy would respond to various outcomes related to the Iran war. The report looked at the impact of the crisis on countries other than China. For instance, in India rising prices for fertiliser, fuel and food have stoked opposition to the Bharatiya Janata Party, the BJP, headed by Prime Minister Narendra Modi. Higher fertiliser costs, combined with prospects for a weak monsoon season, would put additional burden on more than 40 per cent of India's workforce engaged in agriculture. This will have serious political consequences.

The political and economic repercussions are pronounced in Southeast Asia where most countries are net energy importers and governments have turned to emergency borrowing and extended subsidies to support their economies. Amid the energy shock, many Asian countries are looking to China to provide solar panels, battery energy storage and electric vehicles. India has worked with China to establish a facility manufacturing electric-powered rickshaws that would have a positive impact on the severely polluted atmosphere over major cities.

The most important question now is how long this crisis would last. Kurt Campbell, who I have already quoted above, said that the impact on many countries and supply chains has been "deep and profound" and could worsen if the crisis continues. Japan, South Korea and others have worked through many of the reserves that have so far buffeted them from severe economic effects. "In many capacities, from jet fuels to a lot of diesel oils we are basically almost running empty," he said.

China has not only successfully dealt with the crisis, but it has also taken advantage of its effects on what is now generally referred to as Global South. This nomenclature is now being used for what was previously called the developing world. The changes in the global system that are now occurring have placed Pakistan at the centre of the geographic area that could become the central location for dealing with the crisis caused by the war in Iran.