China is reaping the geopolitical rewards of the ongoing conflict in Iran, which economist Paul Krugman characterizes as a “self-inflicted quagmire” engineered by the Donald Trump administration.
Krugman’s assertion follows new U.S. sanctions aimed at the Iranian economy—a move Krugman argues will ultimately backfire and cement Beijing’s strategic advantage.
An ‘Economic D-Day’ or a Dud?
In his recent Substack newsletter, Paul Krugman dissected Treasury Secretary Scott Bessent’s proposed “economic D-Day” against Iran. While the administration claims Iran is already defeated and desperate for a deal, Krugman points out fundamental flaws in their strategy.
He warns that this economic pressure campaign will “fail as thoroughly as the military campaign.” Due to the “sheer scale of the U.S. military failure in the Persian Gulf,” which includes abandoned U.S. bases and a strained Navy, maintaining an effective blockade on Iranian exports has become increasingly difficult.
China’s Geopolitical Windfall
Despite the U.S. successfully blocking some Iranian oil exports—stripping Tehran of roughly $45 billion in 2025 revenue—Krugman emphasizes that this sum is negligible to China, representing merely 0.2% of its GDP.
“The Chinese are obviously enjoying great geopolitical benefits from Trump’s self-inflicted quagmire in Iran,” Krugman noted. He asserts it would cost Beijing very little to keep the U.S. tied down by financing Iran’s essential imports, thereby ensuring the regime’s survival.
Threats Built on Exhausted Credibility
The Treasury Department recently announced expanded sanctions targeting individuals and vessels, threatening to cut off countries trading with Iran from the dollar-based financial system. However, its initial list notably omitted Chinese financial institutions.
Krugman dismissed Bessent’s grandiose claims of globally isolating Iran, arguing the administration’s credibility is already “exhausted” from constantly backtracking and indiscriminately imposing tariffs.
He predicts that those who “really have the goods – China, in this case – smell the scent of desperation.”
According to Krugman, Beijing will step in to ensure the Iranian regime survives, thoroughly enjoying watching Trump “slowly twist in the wind over the Strait of Hormuz.”
How Has Oil and Bonds Performed?
At the last check, Brent Crude Oil Futures were 2.77% lower at $88.04 per barrel, whereas WTI Crude Futures were down 3.09% at $82.36 per barrel.
WTI tracker, United States Oil Fund, LP (NYSE:USO) was up 89.58% year-to-date, down 3.28% over the last month and 77.13% higher over the year. Similarly, Brent tracker, United States Brent Oil Fund, LP (NYSE:BNO) was up 85.06% YTD, 0.38% over the month, and 74.42% over the year.
The S&P 500 index has advanced 11.58% YTD. Similarly, the Nasdaq Composite index was up 11.81%, and the Dow Jones gained 10.41% YTD.
On Monday, the SPDR S&P 500 ETF Trust (NYSE:SPY) and Invesco QQQ Trust ETF (NASDAQ:QQQ), which track the S&P 500 and Nasdaq-100, respectively, closed lower. The SPY was down 0.29% to $763.47, while the QQQ declined by 1.00% to $706.32. Meanwhile, the Dow tracker, State Street SPDR Dow Jones Industrial Average ETF Trust (NYSE:DIA), ended 0.27% higher at $533.65.
In premarket on Tuesday, SPY was up 0.41%, QQQ gained 0.87%, and DIA was 0.45% higher.
Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.
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