Tipping Point

The shift is slow, until it’s sudden: the end of strategic deference

Dear readers,

On September 16, 2025, I posted my piece “Peak Trump”. I pointed out that Donald Trump’s whirlwind of initiatives was running out of steam, and Trump was losing escalation dominance in critical areas of global influence – while China was emancipating and stopped playing along. In that piece, I also suggested that Trump would launch a major initiative in the Middle East to reestablish authority¹.

And here we are. Instead of turning around the momentum of his presidency, the Iran War accelerated the secular forces working against the U.S. They way Trump was received when he arrived in China – just ceremonial figures and Chinese schoolchildren waving Chinese flags showed up at the airport – foreshadows the repositioning of the U.S. in the eyes of global allies and adversaries.

Thucydides was an Athenian general and the world’s first political scientist. He lived in the 5^th century BC and was the first writer to chronicle contemporary wars without references to the intervention of gods, but from an impartial cause-and-effect viewpoint. Famous texts include the Melian Dialogues, an episode in the Peloponnesian War in which dominant power Athens bullied much smaller island Melos to join its military alliance “or face total destruction” (rings a bell?) – a story which political commentators have invoked in recent months to reflect on current events.

Thucydides’ most famous contribution was a generalized observation about the Peloponnesian War – “it was the rise of Athens and the fear that this instilled in Sparta that made war inevitable”.

In 2011, American political scientist Graham Allison coined the phrase Thucydides Trap for this dynamic – in a confined space, the rise of a competitor will necessarily lead to war with the incumbent power.

When Chinese President Xi Jinping met U.S. President Donald Trump on Thursday, May 14, he used the term in his opening remarks. “Whether China and the United States can transcend the so-called Thucydides Trap and create a new normalization of relations between major powers; whether we can join hands to address global challenges and inject greater stability into the world; whether we can advance the well-being of the peoples of our two countries and the future destiny of humanity, and jointly create a better futures for bilateral relations,” Xi said.

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The disbalance of global oil markets deepened again in April. According to latest IEA numbers, released on May 13, output from Gulf countries was 14.4 million barrels/ day (mb/d) below pre-war levels. Higher production from other regions, notably the Atlantic Basin, compensated some of it but total losses since February amount to 12.8 mb/d. Even though demand declined as well (a phenomenon called demand destruction), the global output gap is now around 9mb/d vs. a surplus up until February. Reserves in transit, local tanks, at refineries, and at strategic repositories are draining “at a record pace”, as the IEA noted. Chinese seaborne imports fell by 3.6 mb/d, according to logistics analytics firm Kpler.²

The U.S. government has long recognized there was a mutual dependency between Iran and China. The Chinese economy is critically dependent on Iranian oil, and in turn Iran received foreign funding from China for its own economy, setting up a mutual vulnerability. The Trump administration attacked in this area of weakness when it imposed sanctions on five Chinese “teapot” refineries, independent processors whose viability depended on imports via shadow fleets at discount prices, already in March 2025. According to U.S. laws, American sanctions extend not only to U.S. companies, but also to “U.S. persons” and the use of the dollar for transactions. Therefore, even though this is American law, sanctions have global reach and effectively cut sanctioned companies off from financial markets (including access to U.S. banks, the SWIFT system, dollar clearing, and Western capital). On April 26, out of frustration how the Iran War went, Trump turned up the heat. The American Office of Foreign Assets Control (OFAC, the Treasury department which imposes and administrates sanctions) designated Hengli Petrochemicals as well, China’s second-largest refinery and a major buyer of Iranian crude – a clear message and a major escalation.

This time however, China decided it would not comply. On May 2, China’s Ministry of Commerce invoked China’s Blocking Order in response – laws which were introduced in 2021, and which were intended to counter the extraterritorial reach of foreign sanctions.