"Five Gains for China and Russia from the Iran War" – Peterson Institute

First, even in the most optimistic scenario—where a US-Iran war ends in about six weeks—Russia stands to gain an additional $84 billion (about 126 trillion won) in exports and imports, and $45 billion (about 68 trillion won) in fiscal revenue compared to a no-war situation.

Second, if the United States is tied down in the Middle East, it will inevitably allow Russia to strengthen its sphere of influence in Europe, giving Russia the opportunity to make the maximum possible demands regarding Ukraine.

Third, a moderate increase in oil prices benefits China, which had been struggling with deflation. Furthermore, since China had already imported and stored large amounts of crude oil from Iran and Russia before the war, the price competitiveness of Chinese manufactured goods is maintained even as Western countries face surging production costs due to the spike in oil prices.

Fourth, for China, simply being able to observe US naval operations in the Gulf—including aircraft carrier movements, missile interception patterns, and logistics flows—in real time is of strategic value. This allows China to refine its own Taiwan Strait scenario with greater sophistication.

Fifth, the US sanctions regime, already vulnerable, has been further weakened by exceptions such as the easing of sanctions on Russian crude oil. If the United States withdraws due to domestic costs, Iran's resilience, or both, the space for China to expand its diplomacy and investment in Iran will grow even larger.

Elina Ribakova, Senior Fellow at the Peterson Institute for International Economics (PIIE), and Alicia Garcia Herrero, Senior Fellow at European think tank Bruegel (and Adjunct Professor at Hong Kong University of Science and Technology), outlined these benefits for China and Russia in an article titled “How Russia and China are winning the war in Iran,” published on the PIIE homepage on March 30 (local time).

The following is a summary of the main points.

The expansion of the Iran war is disrupting the global economy and, in some cases, inflicting severe damage. Meanwhile, the silence of Chinese and Russian leaders—usually outspoken—speaks volumes. From their perspective, silence is the best way to allow the United States to become bogged down in a long-term conflict in the Middle East. If that happens, Russian President Vladimir Putin will have more room to expand influence in Europe, while Chinese President Xi Jinping will have more space to strengthen his position in the Indo-Pacific.

Iran’s strategy of blockading the Strait of Hormuz with coastal missile batteries and drones is holding the global economy hostage by driving up energy prices. If the US plan for Iran was modeled after the Venezuela scenario—quickly and overwhelmingly eliminating a perceived threat and declaring victory—that plan is backfiring.

Meanwhile, China and Russia have stepped back. Why? Because China remains dependent on Iran. Iran supplies 13% of China’s crude oil imports at discounted prices. Since 2021, Iran has entered into a 25-year cooperation agreement with China, guaranteeing $400 billion worth of crude oil at prices below market value in exchange for Chinese investment and security cooperation. Since the start of Western sanctions against Russia in 2014, Russia has also regarded Iran as its most important partner in the Middle East. Both countries have supported Iran financially, militarily, and diplomatically for years.

Russia’s Windfall from Eased Oil Sanctions

Russia has been providing Iran with satellite intelligence on the locations and movements of US troops, ships, and aircraft. It is also highly likely that Russia has advised Iran on drone tactics. The resemblance between Iran’s attack patterns and Russia’s methods in Ukraine—attacking infrastructure with drones, followed by precision strikes targeting radar and command-and-control systems—is no coincidence.

The United States has not only refrained from publicly criticizing Russia for these actions, but has also temporarily relaxed sanctions to allow Russian oil exports, granting Russia a significant windfall. The scale of Russia’s fiscal windfall is enormous. Before the Iran crisis, Russia’s energy revenues had plummeted, and its oil export earnings in February had fallen below $10 billion. Reports indicate that Russia was even preparing to cut all non-security spending by 10%. In this context, the Trump Administration’s easing of sanctions against Russia came at a particularly opportune moment.

According to a report by the Kyiv School of Economics (KSE Institute), a Ukrainian think tank, when factoring in the recovery in Russian export volumes, the narrowing discount on Russian crude, and additional revenue from other energy exports, Russia could gain between $45 billion and $151 billion in additional fiscal revenue in 2026, depending on the duration of the conflict.

Even under the most optimistic scenario—assuming a six-week war followed by rapid recovery—Russia stands to gain $84 billion more in exports and imports, and $45 billion more in fiscal revenue than if there had been no war. In an intermediate scenario with a three-month war, additional export and import revenues would reach $161 billion, or about $500 million per day, and additional fiscal revenue would total $97 billion, exceeding Russia’s projected 2025 fiscal deficit. In a pessimistic six-month scenario, Russia would achieve a fiscal surplus and be able to replenish its sovereign wealth fund, allowing it to sustain high levels of war spending for several years to come.

As demonstrated by the US Treasury’s easing of sanctions on Russian oil, Putin seems to expect that Trump will continue to support Russia on the Ukraine issue. Meanwhile, with the United States bogged down in the Middle East, Russia is allowed to solidify its sphere of influence in Europe, and is able to pursue its maximum demands regarding Ukraine.

However, not everything is bleak for Ukraine and Europe. Ukraine is gaining income and negotiating leverage as Gulf states and the United States turn their attention to it, thanks to its unmatched expertise in low-cost, mass-deployed interceptor drones, layered air defense, and electronic warfare. Currently, drones are responsible for 80–85% of front-line targets in Ukraine, with some costing as little as $800–$7,000. Ukraine can leverage this expertise to shift its power dynamic with Western partners—not merely as a recipient of assistance, but as a mass producer of innovative drones. The shifting nature of warfare in the Middle East may also attract desperately needed capital to Ukraine’s defense industry. Europe’s military buildup can be grounded on Ukraine as a contributor, not just a beneficiary.

China Emerges as a Strategic Winner

Despite its dependence on Gulf oil, China is also positioned to benefit. About 5.4 million barrels per day of Gulf oil enter China via the Strait of Hormuz—more than twice the amount it receives from Russia. Thus, China has a clear interest in the reopening of the strait. However, this does not give China any incentive to help the United States. Instead, China acts more subtly. To ensure the safe passage of Chinese-flagged vessels, it has engaged in direct diplomacy with Tehran, and in just the first few weeks of the conflict, over 11 million barrels of Iranian oil continued to flow into China. Payments were made in yuan through China’s Cross-Border Interbank Payment System (CIPS).

China was already prepared for supply disruptions. Possibly anticipating attacks by the United States and Israel, China increased crude oil imports by 16% in January and February, and Russia supplied an additional 300,000 barrels per day to China. As a result, Russia’s seaborne oil exports to China reached about 2.1 million barrels per day. Combined, China’s strategic and commercial oil reserves now total 1.3 to 1.4 billion barrels, sufficient for about four months of imports. China had been filling its storage tanks while Russian oil was still deeply discounted and before market turmoil was fully reflected in prices.

China’s benefits extend beyond energy resilience. While the United States entered the conflict burdened by high inflation, China was suffering from deflation—falling factory gate prices, wage growth barely above 1%, and the risk of a Japan-style prolonged stagnation. A moderate increase in oil prices actually serves as a reflationary force for Beijing. China is better able to absorb this inflation than its competitors because it imports Russian oil at steep discounts, holds massive reserves, and its integrated refining sector can offset some of the cost of expensive oil. As a result, even as Western input costs rise more quickly, the price competitiveness of Chinese manufactured goods is maintained.

On the other hand, China faces significant geopolitical risks. If the United States were to dominate Iran, dismantle regional influence, and install a more pliable regime, China’s hard-won diplomatic achievements in the Middle East could be undermined. While China would be willing to work with any Iranian regime so long as it is economically advantageous, the 2023 Saudi-Iran rapprochement brokered under China’s Global Security Initiative was a symbolic achievement in counterbalancing US dominance in the Gulf. Beijing has pushed for Iran’s membership in the Shanghai Cooperation Organization (SCO) and in BRICS, which is led by China, Russia, Brazil, and India, in order to build a multipolar order it desires. If the United States achieves victory in Iran, this order could be undermined, sending a signal to the Global South that China’s security guarantees are hollow. Conversely, if the United States withdraws due to domestic costs, Iran’s resilience, or both, the space for China to expand its diplomacy and investments will grow even further.

There are also informational advantages that go beyond the current conflict. For China, being able to observe US naval operations in the Gulf—such as aircraft carrier movements, missile interception patterns, and logistics flows—in real time is of strategic value. This allows China to further refine its Taiwan Strait scenario. The more the United States deploys in the Gulf and reveals its operational methods and vulnerabilities, the more precisely China can adjust its plans for a possible armed takeover of Taiwan.

The greatest downside risk of this war is a severe global recession. The Chinese economy remains structurally dependent on export demand. Europe alone absorbs 15% of China’s exports. If ongoing energy shocks push Europe and the United States into recession, China’s export orders will collapse, exacerbating the ongoing real estate crisis and revealing further vulnerabilities in already weakened domestic demand. Standard modeling suggests that for every 25% rise in oil prices, China’s GDP declines by about 0.5%. Moreover, unlike Western governments, China has limited fiscal capacity to protect consumers. The 2026 deficit target leaves no room for additional stimulus to boost consumption.

This content was produced with the assistance of AI translation services.