TUS President Donald Trump’s long-awaited visit to Beijing to meet with Chinese President Xi Jinping took place on Thursday. According to the US State Department, the two sides agreed not to impose fees on ships crossing the Strait of Hormuz. However, it remains unclear to what extent China is willing to use its influence over Iran to help reopen the waterway.
Ship traffic through Hormuz began to decline sharply shortly after the war began on February 28. Crossings across the Strait remain in the single digits, while supply disruptions from the region have already exceeded 800 million barrels, and are expected to rise further if the stagnation continues.
Despite China’s heavy reliance on the Strait – through which nearly 40% of its oil imports pass – Beijing appears to be pursuing a strategy of deliberate patience, allowing Washington to become increasingly embroiled in a costly and open confrontation with Iran. What initially looked like a decisive show of force turned, due to poor advance planning, into a stagnant and protracted conflict. The Strait of Hormuz remains restricted by Iran, while the threat of further escalation still looms in the region. Despite the grand rhetoric, it has become increasingly clear that Trump wants to see an end to the conflict and the reopening of the Strait of Hormuz.
China can wait. China’s visible oil reserves exceed 1.1 billion barrels and continue to increase according to recent data. In fact, China appears so confident in its position that it has been willing to export crude oil – and even re-export barrels that would normally have been reserved for domestic imports – while at the same time reducing the volume of imports. Despite this, Chinese inventory levels have not shown meaningful declines.
However, Beijing also has reasons to want to resolve the conflict. Earlier this year, Trump’s intervention in Venezuela and tightened controls on Venezuelan oil exports cut off the flow of discounted and sanctioned barrels to China. As a result, securing supplies from Iran has become increasingly important to Beijing. Moreover, the Chinese economy – which relies heavily on export demand – would not benefit from a closure of the Strait for a long period, which could lead to broader global economic weakness. Our base scenario currently assumes an improvement in traffic from the strait by August.
During Trump’s visit, Xi stated that China would not supply Iran with military equipment. It remains unclear whether Xi has raised Washington’s plans to supply Taiwan with military equipment, an issue many expected him to address. However, Secretary of State Marco Rubio said US policy toward Taiwan had not changed following Trump’s meeting with Xi, while also warning that it would be a “huge mistake” for China to take Taiwan by force.
One of Trump’s main goals during the visit was reportedly to convince China to buy more American crude instead of Iranian oil. However, such a shift seems unlikely. Beijing has repeatedly ignored US sanctions restrictions, with Chinese independent refiners continuing to buy the lion’s share of Iranian crude oil exports.
In what appears to be a gesture of support from Tehran towards Beijing, Iran said that it has begun allowing some Chinese ships to pass through the Strait of Hormuz after an understanding regarding the protocols for Iranian management of the waterway, according to the semi-official Fars News Agency, quoting an informed source.
Meanwhile, the massive VLCC vessel controlled by the National Iranian Tanker Company, carrying an estimated 2 million barrels of Iranian crude oil, has reappeared in satellite images near the Vietnamese coast after disappearing from Automatic Identification System coverage earlier this month. The ship was last seen on AIS on May 3 while transiting the Lombok Strait before it went dark again. New satellite images taken on May 13 show the massive ship moving north past Vietnam, strongly suggesting the tanker is continuing toward China.
Can the petrodollar survive the Middle East conflict?
Beyond the obvious concerns about energy supplies caused by restrictions in the Strait of Hormuz, the conflict in the Middle East is putting the petrodollar system under significant pressure. Although the system will likely survive, it may become weaker as energy payments become increasingly fragmented across multiple currencies. Before the conflict, JPMorgan stated that 20% of the world’s oil was traded in currencies other than the US dollar, which is likely to rise after the conflict.
More recent reports since the outbreak of the conflict suggest that the greatest risk to the petrodollar system is not direct replacement, but rather gradual fragmentation. While the US dollar still dominates global reserves, commodity financing, shipping insurance, and energy derivatives markets, an increasing share of bilateral oil trade is settled in regional currencies, especially between sanctioned or politically aligned countries. In this sense, the conflict may accelerate the emergence of a multipolar system of energy payments even if it does not fundamentally displace the central role that the dollar plays in global finance.
For example, India has increasingly paid for Russian crude imports over the past few years using a mix of currencies, including the Chinese yuan, UAE dirham, Indian rupee and US dollar. According to shipping sources, Iran has also begun imposing transit fees on some ships in yuan, effectively turning its new control of the strait into an active mechanism for getting rid of dollars.
However, the structural fundamentals supporting the dollar remain significant. The Gulf states have so far refused to adopt Iran’s tariff regime and continue to depend, to varying degrees, on the United States for regional security and defense equipment. In addition, many Gulf currencies remain pegged to the dollar, promoting continued alignment with the US-led financial system.
While China has helped facilitate the restoration of diplomatic relations between Saudi Arabia and Iran, Beijing still shows little desire to play a broader foreign policy or security role in the Middle East. Concerns about transparency in energy, financial and economic data in China remain a factor for many countries in the region. As a result, although the Gulf states may continue to diversify their geopolitical relationships, US influence in the region is still likely to prevail.
Is China really helping?
Despite the broader consequences for global energy markets and the dollar system, the central question remains whether China is ultimately willing to use its influence over Iran to help restore stability in the Strait of Hormuz.
Ultimately, China is likely to support efforts to gradually reopen the Strait of Hormuz, but within carefully defined limits. Beijing appears reluctant to take direct responsibility for regional security or become deeply involved in a military confrontation involving Iran. Instead, China’s strategy so far has been to remain flexible: maintain relations with Tehran, take advantage of sanctioned crude oil prices, and let the United States bear the primary military and political burden of securing the waterway.
However, China also has clear economic incentives to prevent long-term disruption. A continued closure of the Strait of Hormuz would threaten global growth, undermine demand for Chinese exports, and put increasing pressure on Asian energy markets. As a result, Beijing will likely continue to apply quiet diplomatic pressure on Tehran to avoid further escalation while publicly presenting itself as a stabilizing actor.
In practical terms, this means that China may help facilitate the reopening of the Strait of Hormuz through diplomatic engagement and economic influence over Iran, but is unlikely to play a direct executive or security role similar to that played by the United States.
Market insights you can trust
Kpler delivers unbiased, expert-driven information that helps you stay ahead of supply, demand, and market shifts.
Source: Kepler
