Why Iran depends on exports to China

Why Iran Depends on Exports to China

The Critical Role of the Strait

Iran’s recent actions to disrupt shipping through the Strait of Hormuz have intensified economic strain. Yet, this strategy risks harming its own trade flows. While Iranian threats have nearly halted maritime traffic through the strait, experts question whether the country would endure a prolonged closure.

“Approximately 70% of Iran’s non-oil trade relies on ports connected to the Strait of Hormuz,” says Dalga Khatinoglu, an energy analyst at Iran International. A sustained blockade would undermine Iran’s economy, as essential goods like food depend on the same route.

Iran’s exports to China and India are vital. “Closing the strait would cut off both imports and exports, worsening Iran’s financial situation,” explains Sara Vakhshouri of SVB Energy International. The strait’s closure would disrupt not only oil shipments but also aviation fuel and liquefied natural gas, according to Iran International.

Global crude oil consumption sees 20% of its movement through the strait, with over 80% directed to Asia. China, India, and Japan are the primary recipients. If the strait were blocked, Europe would lose 30% of its aviation fuel supply, and 20% of worldwide LNG would face delays.

Sanctions and Strategic Shifts

Western sanctions, including those targeting Iran’s exports, have been in place since 1979. Further restrictions were imposed between 2006 and 2015 over the nuclear program. These measures eased from 2016 to 2018 with Iran’s participation in the JCPOA, but Trump reinstated strict penalties after withdrawing from the agreement.

Despite sanctions, Iran continues to trade via indirect channels. This has pushed 80% of its exports toward China, as noted by Kpler data. China now dominates the market for Iranian, Venezuelan, and Russian oil, allowing these nations to sell at lower prices. While China benefits from cost savings, Iran suffers reduced revenue.

Transportation costs have surged due to sanctions, forcing Iran to use shadow fleets and intermediaries. “China is essential for Iran’s oil exports,” says Nikolay Kozhanov of Qatar University. “It buys most of the sanctioned crude, making its economic growth more crucial than new UN sanctions.”

Sanctions have also helped China diversify its oil sources. By distancing from U.S.-aligned suppliers like GCC members, China reduces dependency on Western markets. However, these penalties weaken Iran’s long-term prospects, limiting access to technology, finance, and investment. “Iran’s oil sector is entering a slow decline,” Kozhanov adds. “This mirrors the broader erosion of regime stability and performance.”