And in the end, is it China that wins?
It would be hard to find a more striking contrast in the way the conflict in Iran is being managed. In contrast to a vindictive, over-the-top Donald Trump, who has been making as many statements as he has contradictory speeches, China is pursuing a far more measured strategy. Hardly making itself heard at the start of hostilities, Beijing confined itself to condemning the US-Israeli strikes and calling for a ceasefire, without pressing the point too hard. And whilst, through the voice of Foreign Minister Wang Yi, China has gradually stepped up its rhetoric, it was not until the very end of March that it took concrete action, starting with the talks led by Pakistan in an attempt to reconcile Iran and the United States. Behind this attempt by Islamabad, it is indeed difficult not to see the hand of Beijing, which, incidentally, officially joined the talks shortly afterwards.
The timing of China’s decision to take a more visible role in the Iranian conflict appears to be no coincidence. It is intervening just as the four- to five-week deadline mentioned by Donald Trump at the start of the conflict is drawing to a close, and at a time of heightened tension over energy prices. The economic impacts are beginning to be felt by many countries, including China. In doing so, Beijing is positioning itself as a credible player at a time when the need for a resolution is becoming urgent. Furthermore, it offers a striking contrast to the chaotic strategy and communication of the United States, positioning itself as a force for de-escalation and stability.
This may seem paradoxical given that, despite official denials, it appears clear that China is providing military support to Iran, notably by supplying it with navigation and guidance systems enabling precision strikes. But for Beijing, it is above all a matter of playing both sides: unofficially supporting its geopolitical allies whilst officially presenting itself as the paragon of conciliation and balance. Faced with an increasingly erratic American image, this is a clear geopolitical gain, particularly vis-à-vis the ‘countries of the South’.
In the short term, China is not immune to the economic consequences of the conflict, even though some ships bound for China have been allowed to pass through the Strait of Hormuz. The Chinese chemical sector, for example, which is heavily dependent on supplies via the Strait, is facing a sharp rise in costs. This situation significantly undermines its competitiveness, particularly in the European market, where China has become accustomed to undercutting prices. In the longer term, however, it stands to gain a great deal. On the one hand, the conflict in Iran serves as a reminder to the world of the dangers of dependence on fossil fuels, both for environmental reasons and, above all in this case, for reasons of sovereignty. This inevitably reinforces the imperative for energy independence as well as the increased shift towards electric power. Yet, in this sector, Chinese industry is at the forefront, whether in terms of production equipment – solar panels, civil nuclear power – or consumer products such as electric vehicles.
Furthermore, the more significant a role China plays in resolving the Iranian conflict, the greater its ability to purchase raw materials in yuan rather than dollars. This is a crucial issue for Beijing in its quest for leadership. Whilst its status as a safe-haven currency is being challenged by the erratic nature of Trump’s foreign policy, the dollar remains by far the world’s reserve currency and the benchmark currency for commodity trading. This is a position that Beijing is actively seeking to erode, in an attempt to gradually establish the yuan as the benchmark currency. It is a long process, which events such as the Iranian conflict may accelerate.
For investors, the key is to look beyond short-term volatility. This episode will accentuate the creeping phenomenon of the world’s re-regionalisation, the desynchronisation of economic cycles, the questioning of US leadership and the imperative of sovereignty. These prospects argue, more than ever, for the geographical diversification of investments and positioning on the underlying trends that are likely to contribute to the reshaping of international relations.
Draft completed on 02.04.202 6 | Enguerrand Artaz, Strategist, La Financière de l’Échiquier (LFDE)