China Scales Back Trade With Iran Amid Economic Crisis

China is rapidly reducing its trade with Iran, primarily due to Iran's inability to pay for goods, and possibly influenced by the recent Trump-Xi Jinping summit. Chinese officials have concluded that Iran's oil exports, a significant component of China's energy supply, are unlikely to resume soon, prompting adjustments. China has halted its refined oil exports to Iran, citing concerns about potential shortages and the need to replenish its own reserves. Additionally, Chinese shipments of various goods to Iran are decreasing, influenced by the maritime blockade of the Strait of Hormuz and the threat of U.S. sanctions on entities trading with Iran.

Beijing believes the U.S. is determined to maintain economic pressure on Iran, while the Iranian leadership is unwilling to compromise. Consequently, the prospects for a swift resolution to the conflict or Iran's economic recovery are deemed slim. This situation signifies a gradual cessation of commercial ties between China and Iran, though China may maintain diplomatic relations and shield Iran from severe UN Security Council actions.

Meanwhile, Iran's economic crisis is intensifying. The U.S. dollar has surpassed 2.7 million Iranian rials in the free market, and the Euro has exceeded 3 million rials. The Central Bank of Iran's attempt to stabilize the currency by injecting $2 million failed, and the rial continued to plummet. The U.S. naval blockade has effectively reduced Iran's oil export revenues to near zero, with the regime struggling to receive payments from remaining international clients due to financial sanctions.

According to IMF estimates, average inflation is around 70% to 73.6% annually, with some estimates placing it closer to 100%. Prices for basic food items like meat and dairy have surged by 120% to 150% since the conflict began. The official unemployment rate is nearing 10%, but is estimated to be three times higher in reality, largely due to the collapse of self-employment. Public sector workers, including teachers and doctors, are resigning due to the government's inability to pay realistic salaries.

In an effort to mitigate the government deficit, subsidies on fuel have been cut, and purchase quotas at stations are being limited, increasing public discontent and potentially sparking further protests. Tehran's municipality has announced a price freeze on 12 essential goods, leading merchants to create shortages and sell on the black market at higher prices.

Iran has largely lost its leverage to block the Strait of Hormuz, with oil exports through the strait and bypass pipelines returning to pre-war levels. However, natural gas exports are affected, impacting Qatar, the world's largest gas exporter, which has cut its budget by 30%. For Israel, this means an 85% reduction in Qatar's budget for influence campaigns and foreign aid, which Ofir Akunis, Israel's Consul in New York, noted in the reduced participation at anti-Israel demonstrations during the UN General Assembly.

Professor of Economics Shlomo Maoz predicts that if the U.S. maintains its blockade of Hormuz and air routes, Iran's regime may become unable to function economically and civically by June 2027, due to shortages of essential goods, food, and medicine. He believes urban areas, particularly in southwestern Iran, will be the first to suffer from market collapses and shortages. Maoz suggests that patience with sanctions and the blockade is necessary, as this pressure could incite internal protests and rebellion, similar to the fall of apartheid South Africa.

He estimates the regime may hold on for a few more months due to substantial gold reserves acquired with Turkey's help, but trade route limitations also restrict this option. Israeli, U.S., and Gulf intelligence agencies anticipate severe protests could begin within two to three months, leading to Iran's paralysis and accelerating its economic collapse. This economic pressure might provoke an Iranian escalation attempt before the U.S. midterm elections, aiming to influence their outcome. However, a senior U.S. official stated the President remains committed to the current policy.