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Geopolitics - Middle East; Commodities - Oil; Policy - US
Operation Epic Fury - Treaty on the Non-proliferation of Nuclear Weapons - 1958 Geneva Convention on the Territorial Seas - QatarEnergy - Sinopec- CNPC- Belt and Road Initiative - Iran-China Partnership Agreement 2021
Published: 10 March 2026, by Wilson Lam, Linda Zhou, and Sam Wan
On 28 February 2026, the US and Israel launched a joint offensive (“Operation Epic Fury”) striking multiple locations in Iran, targeting leadership, military installations, nuclear facilities, and missile production sites. The strikes occurred despite advancements in talks between US and Iran in Vienna the night before.
At his first public remark since the strike, President Trump named four military objectives, namely to 1) destroy Iran’s missile capabilities, 2) annihilate its navy, 3) prevent Iran from developing nuclear capabilities, and 4) dismantle Iran’s proxy network. There was no mention of oil or regime change. Additionally, despite Trump’s remark, the narrative continues to shift from within the US administration, ranging from nuclear non-proliferation enforcement to pre-emptive war. This study will unpack the conflict from three perspectives: nuclear proliferation, oil economy, and proxy influence. In hopes to determine the rationale for this conflict and ramifications for global parties, particularly China.
During Operation Epic Fury, one justification by the US was that it is a preventive measure against nuclear proliferation. President Trump argued that Iran’s nuclear program was developing capabilities, including long-range missiles, that could threaten Europe and potentially the United States itself. Prior to the US-Israel attacks in last June, the International Atomic Energy Agency (IAEA) estimated that Iran possessed 440.9 kg of 60% enriched uranium, a level in which the so-called “weapons-grade” threshold (90%) can be easily reached for development of nuclear weapons. The current location of these enriched uranium remains unknown.
The root of this conflict derives from the Treaty on the Non-proliferation of Nuclear Weapons (“NPT”). Entering into force in 1970, the NPT put a ban on every non-nuclear-weapon state, including Iran, over any manufacture or acquisition of nuclear weapons or explosive devices. Since Iran’s two undeclared nuclear sites were discovered in 2002, Iran’s nuclear activities have been treated with intense suspicion. To restrict the Iranian nuclear program, the five permanent members of the UNSC together with the EU executed the Iran nuclear deal (JCPOA) with Iran in 2015. It ended in 2018, when Donald Trump walked out of the agreement.
Picture: the Natanz Nuclear Facility with new building damage, near Natanz, Iran, March 2 (Reuters)
Current evidence suggests that the strikes caused visible structural damage and operational disruption, but there is still no definitive confirmation that Iran’s nuclear enrichment capability has been fully eliminated. The clearest confirmed damage occurred at the Natanz uranium enrichment complex, Iran’s primary enrichment facility. According to the IAEA, entrance buildings to the underground enrichment plant at Natanz were struck during the attacks, however there was no radiological release and that the main underground enrichment facility itself may not have been directly destroyed.
The strikes may also result in unintended strategic consequences. External military pressure usually strengthens a country’s motivation to pursue nuclear weapons as a deterrent against future attacks. In this sense, attempts to prevent nuclear proliferation through force could instead increase the political incentive for nuclear weaponisation. The Director-General of the IAEA, Rafael Grossi, urged all parties to exercise “utmost restraint” following the strikes, warning that further escalation could threaten nuclear safety and regional stability. Moreover, political instability in Iran could heighten the risk of nuclear proliferation. Nuclear non-proliferation expert Kelsey Davenport warned that unrest in Iran could increase the risk that nuclear materials might be diverted or stolen. This threatens the global security order overall.
The relatively understated effect of the Iran strike is its impact on global oil and gas trade. The US administration has been relatively silent on this, providing only marginal relief after many days of hostilities. The markets delivered a different picture, with oil prices surging by 12% and gas prices by 60% since the fighting began, signalling wider panic.
Photo: all oil fields in the region (Global Energy Monitor)
The main trigger was Iran’s recent threats to blockade the strait of Hormuz, a narrow chokepoint where 20% of the world’s crude oil and liquified natural gas (LNG) pass through. Despite the strait falling within Iran’s exclusive economic zone, Iran has no legal basis in blockading the strait. Under Art.16(4) of the 1958 Geneva Convention of the Territorial Seas (ratified by Iran), states cannot suspend “innocent passage” by foreign ships through a strait used for international navigation. Iran can only blockade the strait by fact (de facto).
Almost all major oil production sites in the Middle East are clustered around the Persian Gulf. A blockade will sever access to the flow of oil and gas, with no land routes or pipeline alternatives available at scale. This is not a simple reduction in supply, this is a disruption in the global supply chain, which will take longer to recover, if ever.
Photo: Brent oil prices from 1985-2026 (EIA)
This is not the first time the world underwent an oil shock from ongoing conflict. During the Ukrainian conflict in 2022, Brent oil prices saw a peak of $127, almost 50% higher than the current peak price of $85. During the Gulf Wars (1990-2003), Brent oil prices sustained a peak of $110 (inflation-adjusted). The reason for a lower price shock now is due to markets reacting on fear premium alone, while real energy disruptions may take weeks to materialise. The question rests on the duration and intensity of Iran’s blockade.
For Iran, fighting a protracted war requires a resilient economy. This directly translates to whether Iran is willing to block the strait, where US Secretary of State Marco Rubio stated that seizing Hormuz for Iran is “economic suicide”. Crude oil exports account for 25% of Iran’s GDP. A full blockade of the strait will send Iran’s economy into a deeper mire, stunting its war effort. Thus, it is unlikely Iran intends to fully blockade the strait. As to whether Iran can block the strait, Iran's conventional navy (IRIN) have been largely dismantled by the US. However, Iran’s second navy (IRGCN), an agile force with lighter assets (e.g., speedboats), may be able to block the strait with projectiles and mines. Such blockage would be more absolute compared to a naval blockade, potentially undermining Trump’s pledge of US naval escort to oil tankers through Hormuz since Iran relies not so much on actual blockading of the strait, but the threat of it.
Energy Security - China
Surprisingly, China is also a relevant stakeholder in this conflict. China is a major benefactor from the oil trade with Iran, buying 90% of Iran’s crude exports through sanction-evading shadow fleets at a significant discount. Further, the Gulf makes up a significant portion of China’s crude oil supply. 56.9% of all crude imports into China come from the Gulf nations (Saudi Arabia, Kuwait, Iraq, UAE). Sealing Hormuz effectively deprives China of half its crude oil supply, which is used to fuel transportation (i.e., planes, ships, trucks) and petrochemical production.
China has been historically self-reliant for oil, which has insulated the impact of supply shocks caused by previous conflicts in the Gulf. This is drastically different today with increased exposure to Middle Eastern crude oil supply. However, compared to other Asian markets, China is potentially more resilient to a Hormuz blockade. First, China has one of the largest crude stockpiles of around 1.2 billion barrels in 2026, this can cover roughly 108 days of import disruptions. Second, China can rely on Russian crude through the Eastern Siberian-Pacific Ocean (ESPO) land pipeline system and Arctic shipping routes, bypassing Hormuz. Third, despite having insufficient local crude production, China has large refining capabilities that are essential in the oil process. By relying on Russian and West African crude and reducing non-essential refined oil product exports, China can quickly pivot its refinery capabilities to address local needs from the import shock. What we will see is potentially a delayed and muted response to the situation in Hormuz.
Another factor is LNG. On 4 March 2026, QatarEnergy declared force majeure after its liquefaction facility, the largest globally, was hit by an Iranian retaliatory drone strike. A force majeure clause allows QatarEnergy to miss contractual deliveries without penalty due to events beyond its control. As of 2024, 25% of China’s LNG imports came from Qatar. LNG is mainly used in China for power generation (60%), petrochemical production (20%), and LNG truck use (10%).
Compared to crude supply, China seems to be more vulnerable to LNG supply disruptions. Even though 61% of natural gases are extracted in China domestically, it is supplied through pipeline contracts which are inflexible. Though China does have local liquefaction infrastructure to turn natural gas into liquid, it is insufficient in scale to meet the import shortfall. LNG is essential for flexible “fuel-switching”, which will now be more costly with Qatar halting LNG production. To relieve short term LNG shortage, China can alternatively rely on US and Australian supply, yet it is unlikely to fully offset the loss since both countries are producing at near-full capacity and are locked in long term contracts. Therefore, we will see a short term squeeze in LNG supply in China which will result in elevated electricity prices, high LNG spot prices, truck fuel shortages, and heightened inflation.
Further, China is locked in long-term LNG supply contracts with Qatar. In 2023, QatarEnergy signed two 27-year LNG contracts with Sinopec and one with China National Petroleum Corporation (CNPC), totaling LNG supply flow of 11 million cubic tonnes per year. The damage to QatarEnergy’s facilities and its reliance on force majeure clauses means it cannot practically deliver shipment and is not legally required to make up for the lost obligations in payment or goods. CNPC and Sinopec together are set to lose 2.75 million tonnes of LNG supply if the disruption lasts for at least 3 months.
The 27-year contracts were predicated on stable Qatari supply amid geopolitical stability in the Middle East, pursuant to the Belt-and-Road Initiative (BRI). China must reevaluate its long-term reliance on crude and LNG imports from a potentially unstable region, especially when it is so heavily dependent on US military assets for regional security.
President Trump intends for a swift end to the conflict, the reality on the ground tells us a vastly different story. Despite enduring ten consecutive days of overwhelming US and Israeli airstrikes, which recently targeted fuel storage complexes and energy infrastructure in Tehran, Iran’s leadership has not yielded. Instead, Tehran has activated its ultimate asymmetric weapon: it is widening the war by engaging its sprawling, multi-national network of proxy militias to paralyse the global economy.
Historical Background
After the 1979 revolution and the devastating eight-year war with Iraq (1980–1988), Iran’s conventional military remained severely degraded due to international sanctions. To offset the conventional military weakness, Iran implemented the “proxy strategy”, often referred to by Tehran as “Forward Defense” (Defa-e-Pishgan), a sophisticated asymmetric military doctrine designed to ensure the survival of the Islamic Republic by projecting power far beyond its own borders. This included proxies like Houthis, Hamas, and Hezbollah to dilute adversary focus and maintain plausible deniability.
However, this architecture has evolved into a liability in recent times as it is seen to compete with the regional hegemony of the US in this region.
Photo: Iran's proxy network (NYTimes)
Current conversion
The correlation between Iran and its proxies is managed by the IRGC Quds Force, which serves as the organisational hub for the "Axis of Resistance". The Quds Force provides specialised training, advanced weaponry (drones, ballistic missiles), and a unified communications network.
Moreover, Iran has increasingly turned to digital assets to transfer and cash out funds in recent years. IRGC transacted more than $8 billion in cryptocurrency to avoid sanctions and fuel cybercriminal operations. The figure could be higher, given that it only accounts for sanctions designations from the US. In a dramatic escalation of this strategy, Iran’s Ministry of Defence Export Center (Mindex) announced in late 2025 that it would directly accept cryptocurrency payments for advanced weaponry. This creates a closed-loop system. Iran can use the crypto it earns from global arms sales (e.g., selling drones to foreign state or non-state actors) to directly fund its proxies, completely avoiding the global banking system.
Generally, the level of Iranian control varies among the proxies. Hezbollah is the most integrated, functioning almost as an extension of the Iranian state. In contrast, the Houthis and Hamas maintain higher degrees of operational autonomy, making them more unpredictable even now that Tehran’s central command is weakened by the strike.
As direct strikes on Iran intensify, the "Axis of Resistance" is expected to enter the fray in a coordinated "encirclement" strategy: Hezbollah launched massive drone and missile barrages into northern Israel on March 2, attempting to open a definitive northern front; Houthis intensified Red Sea blockades and targeted US naval assets to stretch American defences thin across multiple maritime kill zones; militias in Iraq and Syria attempted to cross borders to quell domestic protests or target US bases in Iraq and Syria to impose high political costs on Washington.
Future implications
Contrary to traditional doctrine suggesting that striking Tehran would paralyse its proxy network, indicators mentioned above suggested the opposite. Due to Iran's decades-long "Forward Defense" strategy, groups like Hezbollah and the Houthis have achieved a high degree of operational and decision-making autonomy; Current battlefield dynamics also show that previously fragmented proxies are undergoing horizontal integration. This may lead to the non-ideal financial reliability crisis in the middle east, posing significant doubt on “facilitating opening investment accounts initiative”.
From the perspective of Middle East investment stability, the fallout from the war represents a profound paradigm shift. For decades, Dubai has successfully marketed itself as an insulated "safe haven", a hyper-modern oasis where regional conflicts stop at the city's borders. However, the unprecedented autonomous retaliation by Iran's proxy network has fundamentally tested this narrative, striking at the very core of Dubai’s financial and economic ambitions. For instance, the FDI frameworks designed to drastically cut the time required to open business bank accounts have been heavily undermined as Iran and its proxies launched a massive wave of retaliatory cyberattacks against the Gulf.
From China’s perspective on the other hand, the fragmented threat after conventional war indeed substantially impeded the “Belt and Road Initiative”. However, despite the immediate threat to infrastructure, the war has also accelerated the political and financial mechanisms of the Iran-China 25-Year Comprehensive Strategic Partnership. Signed in 2021, the agreement only activates if the US does not return to the nuclear agreement. The Partnership guarantees $400 billion worth of economic and security services from China to Iran over 25 years, in return for a steady supply of oil. This effectively incorporates Iran into the BRI, forming an essential building block to China’s regional strategy.
Operation Epic Fury has momentous effects that continue to ripple through regional diplomacy and commodity markets. This attack has undoubtedly damaged the perceived stability of UAE, Qatar, and Bahrain as “safe havens”. Resulting in a rude awakening to the geopolitical realities of the region. This may be beneficial to Asian “safe havens” as funds and family offices look to relocate their assets elsewhere. This attack has also provided a reckoning to the stability and reliability of the BRI, forcing China to reevaluate its strategy in relying on Middle Eastern partners that remain geopolitically unstable, and pursuing global influence without the requisite military reach to support it.