By Diana Choyleva

About the author: Diana Choyleva is the founder and chief economist of Enodo Economics and a senior fellow at the Asia Society Policy Institute's Center for China Analysis.

Investors have been watching the war in Iran with one eye on markets. They should train their other on China.

The immediate economic consequences of the conflict -- on oil and gas prices, primarily -- are being tracked by investors and analysts closely. What investors are underpricing are the second-order effects on the U.S.-China power struggle.

The conflict is reshuffling the deck of cards that President Donald Trump and Chinese President Xi Jinping will bring to their high-stakes meeting on tariffs and trade in April. Whether Trump acquires new leverage in those talks is now one of the most important questions for global investors to consider.

Before the war, China held a strong upper hand. Its dominance over critical minerals, rare earths, and the supply chains underpinning green and tech industries gave Beijing leverage Washington can't meaningfully counter in the short term.

A secondary, but growing, advantage was China's erosion of the petrodollar system, which refers to the dollar-denominated global oil trade. China isn't directly challenging oil pricing, in which the dollar remains deeply entrenched. But it is securing heavily discounted crude from Iran, Russia, and Venezuela outside conventional oil trading channels and paying for that oil in renminbi using its alternative cross-border payment system. Avoiding the petrodollar system simultaneously reduces China's dollar dependency and lowers its energy costs -- a double advantage that has quietly strengthened Beijing's hand.

The U.S. capture of Venezuelan President Nicolas Maduro in January, and now its campaign against Iran, directly target that architecture. Iran, Russia, and Venezuela have been the main conduits through which China secured discounted crude outside the dollar system. It does so through shadow fleets, yuan-denominated deals, sanctions-evasion networks built to reduce China's vulnerability to U.S. sanctions. Remove Iran and Venezuela from China's orbit, and that infrastructure is seriously undermined.

Washington and its allies -- including Saudi Arabia, the linchpin of the petrodollar system -- would then collectively control roughly 60% of global oil production and 70% of oil reserves. That gives the U.S., for the first time, a credible threat to China's energy access. It is a powerful card that carries far less risk of blowback than weaponizing the dollar directly through sanctions.

Perhaps counterintuitively, Saudi Arabia is now the decisive variable in the U.S.-China power struggle. The kingdom has been carefully hedging between Washington and Beijing -- deepening economic ties with China while preserving its security relationship with the U.S. and continuing to anchor the petrodollar system with its oil exports.

Iran's strikes on Saudi oil infrastructure this week severely strain that balancing act. Riyadh needs U.S. military support more than ever. But its leaders will have to think hard before becoming an instrument of American pressure on their largest oil customer: China. How Riyadh aligns in the coming months will be one of the most consequential decisions for the future of U.S.-China relations.

New leverage only materializes if the campaign produces an Iranian regime neutral to U.S. interests. That won't be easy. The Islamic Republic is resilient by design. Shiite ideology treats resistance to the point of annihilation as preferable to capitulation. The opposition within Iran is fragmented. A messy, protracted conflict that weakens but doesn't replace Iran's chain of command leaves Washington with a liability rather than an asset.

With those caveats in view, what does this mean for markets? A Trump emboldened by events in Iran might arrive in Beijing in April with a stronger hand than seemed plausible weeks ago. The asymmetry that favored China may start to erode.

Washington can press harder now on rare-earth supplies and investment in the U.S., and give almost nothing further in regards to its arm sales to Taiwan or its restriction on tech sales to China. Beijing may have to give more and get less than it thought. On balance, expect the Trump-Xi relationship to sour from here and the room for a mutually appeasing, superficial bargain to narrow.

Washington didn't go to war with Iran primarily to gain leverage over China. The motivations were Middle Eastern: Eradicate Iran's nuclear program and its support of regional proxies and topple its regime. But consequences aren't limited to intentions.

Markets aren't pricing any of this adequately. The Iran war isn't a contained and short regional shock. It is a live stress test of the geopolitical and financial architecture underpinning China's strategic ambitions.

It is a direct challenge to the equilibrium that has kept tensions with China within manageable bounds in the past few months. A souring of U.S.-China relations, coupled with a prolonged war, would move global equity risk premium structurally higher. Sustained risk-off is the only reasonable posture for the foreseeable future.

Guest commentaries like this one are written by authors outside the Barron's newsroom. They reflect the perspective and opinions of the authors. Submit feedback and commentary pitches to ideas@barrons.com .

This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

By Diana Choyleva

About the author: Diana Choyleva is the founder and chief economist of Enodo Economics and a senior fellow at the Asia Society Policy Institute's Center for China Analysis.

Investors have been watching the war in Iran with one eye on markets. They should train their other on China.

The immediate economic consequences of the conflict -- on oil and gas prices, primarily -- are being tracked by investors and analysts closely. What investors are underpricing are the second-order effects on the U.S.-China power struggle.

The conflict is reshuffling the deck of cards that President Donald Trump and Chinese President Xi Jinping will bring to their high-stakes meeting on tariffs and trade in April. Whether Trump acquires new leverage in those talks is now one of the most important questions for global investors to consider.

Before the war, China held a strong upper hand. Its dominance over critical minerals, rare earths, and the supply chains underpinning green and tech industries gave Beijing leverage Washington can't meaningfully counter in the short term.

A secondary, but growing, advantage was China's erosion of the petrodollar system, which refers to the dollar-denominated global oil trade. China isn't directly challenging oil pricing, in which the dollar remains deeply entrenched. But it is securing heavily discounted crude from Iran, Russia, and Venezuela outside conventional oil trading channels and paying for that oil in renminbi using its alternative cross-border payment system. Avoiding the petrodollar system simultaneously reduces China's dollar dependency and lowers its energy costs -- a double advantage that has quietly strengthened Beijing's hand.

The U.S. capture of Venezuelan President Nicolas Maduro in January, and now its campaign against Iran, directly target that architecture. Iran, Russia, and Venezuela have been the main conduits through which China secured discounted crude outside the dollar system. It does so through shadow fleets, yuan-denominated deals, sanctions-evasion networks built to reduce China's vulnerability to U.S. sanctions. Remove Iran and Venezuela from China's orbit, and that infrastructure is seriously undermined.

Washington and its allies -- including Saudi Arabia, the linchpin of the petrodollar system -- would then collectively control roughly 60% of global oil production and 70% of oil reserves. That gives the U.S., for the first time, a credible threat to China's energy access. It is a powerful card that carries far less risk of blowback than weaponizing the dollar directly through sanctions.

Perhaps counterintuitively, Saudi Arabia is now the decisive variable in the U.S.-China power struggle. The kingdom has been carefully hedging between Washington and Beijing -- deepening economic ties with China while preserving its security relationship with the U.S. and continuing to anchor the petrodollar system with its oil exports.

Iran's strikes on Saudi oil infrastructure this week severely strain that balancing act. Riyadh needs U.S. military support more than ever. But its leaders will have to think hard before becoming an instrument of American pressure on their largest oil customer: China. How Riyadh aligns in the coming months will be one of the most consequential decisions for the future of U.S.-China relations.

New leverage only materializes if the campaign produces an Iranian regime neutral to U.S. interests. That won't be easy. The Islamic Republic is resilient by design. Shiite ideology treats resistance to the point of annihilation as preferable to capitulation. The opposition within Iran is fragmented. A messy, protracted conflict that weakens but doesn't replace Iran's chain of command leaves Washington with a liability rather than an asset.

With those caveats in view, what does this mean for markets? A Trump emboldened by events in Iran might arrive in Beijing in April with a stronger hand than seemed plausible weeks ago. The asymmetry that favored China may start to erode.

Washington can press harder now on rare-earth supplies and investment in the U.S., and give almost nothing further in regards to its arm sales to Taiwan or its restriction on tech sales to China. Beijing may have to give more and get less than it thought. On balance, expect the Trump-Xi relationship to sour from here and the room for a mutually appeasing, superficial bargain to narrow.

Washington didn't go to war with Iran primarily to gain leverage over China. The motivations were Middle Eastern: Eradicate Iran's nuclear program and its support of regional proxies and topple its regime. But consequences aren't limited to intentions.

Markets aren't pricing any of this adequately. The Iran war isn't a contained and short regional shock. It is a live stress test of the geopolitical and financial architecture underpinning China's strategic ambitions.

It is a direct challenge to the equilibrium that has kept tensions with China within manageable bounds in the past few months. A souring of U.S.-China relations, coupled with a prolonged war, would move global equity risk premium structurally higher. Sustained risk-off is the only reasonable posture for the foreseeable future.

Guest commentaries like this one are written by authors outside the Barron's newsroom. They reflect the perspective and opinions of the authors. Submit feedback and commentary pitches to ideas@barrons.com .

This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

March 06, 2026 21:31 ET (02:31 GMT)

Copyright (c) 2026 Dow Jones & Company, Inc.