As the world reels from a week of relentless conflict in the Middle East, the cascading effects of the U.S.-Israel war with Iran are rippling far beyond the immediate region—destabilizing global security balances, shaking financial markets, and even shifting the strategic calculus in East Asia. The crisis, now entering its seventh day, has not only devastated Iran but sent shockwaves through neighboring countries and the corridors of power in Beijing and Taipei.
On March 5, 2026, China’s National People’s Congress (NPC) opened with Premier Li Qiang announcing a 7% increase in defense spending. Standing in the cavernous Great Hall of the People in Beijing, Li struck a strident tone, vowing the People’s Liberation Army (PLA) would “accelerate the development of advanced combat capabilities” and “resolutely crack down on separatist activities” in Taiwan. This marked a notable escalation from last year’s more measured promise to simply “oppose” such activities, as reported by TIME.
Yet, as tensions simmered across the Taiwan Strait, it was events thousands of miles away that most preoccupied security analysts. The U.S. and Israel’s Operation Epic Fury, launched against Iran on March 1, has left more than 1,230 Iranians dead, according to the Center for Strategic and International Studies (CSIS). In just the first four days, U.S. forces struck close to 2,000 targets—including 16 ships and a submarine near Sri Lanka—demonstrating a level of military reach and precision that few expected. The Israeli military, for its part, claimed “near-complete air superiority,” boasting 2,500 strikes and the destruction of 80% of Iran’s air defense systems.
American officials, however, are quietly grappling with the cost of such overwhelming force. CSIS estimates put the first 100 hours of Operation Epic Fury at a staggering $3.7 billion, most of which was not budgeted. These operations have also depleted stocks of sophisticated weapons systems—munitions vital to the defense of Taiwan, as noted in TIME’s coverage. During a closed-door briefing on Capitol Hill, lawmakers pressed the Trump administration for assurances that U.S. reserves would suffice should another crisis erupt—say, in the Taiwan Strait.
“Will Xi be tempted to take advantage of U.S. potentially exhausting smart munitions and attack Taiwan even if the PLA is not fully ready?” wondered Prof. Steve Tsang of the SOAS China Institute, quoted by TIME. The question is not idle: President Xi Jinping has long called the “reunification” of Taiwan “the great trend of history.” With U.S. attention and resources stretched thin, some fear Xi may see a fleeting window of opportunity.
But the picture is far from one-sided. The American campaign in Iran has showcased not only overwhelming force but also intelligence prowess, evidenced by successful decapitation strikes against Ayatollah Ali Khamenei and his top aides. The operation followed the dramatic capture of Venezuelan leader Nicolás Maduro, further highlighting U.S. capabilities. Wen-ti Sung, a political scientist at the Australian National University, observed, “The specter of a decapitation strike has been proven a more realistic scenario. China’s first reaction will be: ‘This could happen here.’”
There are additional headaches for Beijing. China’s own military hardware—kamikaze drones and air-defense systems—has underperformed in both Iran and Venezuela, failing to stop U.S. and Israeli attacks. As Prof. Chong Ja Ian of the National University of Singapore put it, “China will be looking to learn from the failings of their own equipment in both Venezuela and Iran. And I think they are somewhat surprised by the demonstration of U.S. force and its ability to execute pretty complex operations.”
Diplomatically, China has found itself on the sidelines. Once a proud broker of peace between Tehran and Riyadh, Beijing is now reduced to issuing condemnations and dispatching “peace envoys” with little effect. Nicholas Burns, former U.S. ambassador to China, wrote on X, “China is proving to be a feckless friend for its authoritarian allies.”
Economically, the war has exposed China’s vulnerabilities. The country relies on Iran and Venezuela for 13% and 4% of its oil imports, respectively, and half of its oil and nearly a third of its liquefied natural gas comes from the Middle East—now a region in turmoil, especially as the Strait of Hormuz faces blockades and disruptions. While China is expanding its green energy portfolio, its near-term energy security remains at risk.
Back in the U.S., the conflict’s impact is being felt in financial markets. The Dow Jones plummeted more than 1,000 points earlier in the week, a 2.2% drop, as oil prices surged. About 20,000 Americans have already left the Middle East, according to the State Department, with the government scrambling to arrange charter flights for those still seeking evacuation. Even a French government evacuation flight was forced to turn back mid-flight due to missile fire.
In Iran, the death of Supreme Leader Ayatollah Ali Khamenei in a U.S.-Israeli strike has triggered a succession crisis. Reports suggest his son, Mojtaba Khamenei, is a leading candidate, but on March 5, President Donald Trump publicly declared Mojtaba “unacceptable” and vowed to play a direct role in selecting Iran’s next leader. Iran’s Foreign Minister Abbas Araghchi dismissed negotiations out of hand, stating, “There is no reason why we should negotiate with the US.”
Meanwhile, Iranian missile and drone attacks have dropped sharply—by 90% and 83% respectively, according to U.S. officials. Yet, the threat of escalation lingers. Ali Larijani, Secretary of Iran’s Supreme National Security Council, warned that Iranian forces are “waiting” for a possible U.S. ground invasion and threatened to kill and capture thousands of U.S. troops. Across the region, countries such as Kuwait, Bahrain, the UAE, Qatar, Iraq, Lebanon, Egypt, and Azerbaijan have all been drawn into the conflict, suffering attacks, economic shocks, or both.
Against this backdrop, Premier Li’s hawkish rhetoric on Taiwan comes with caveats. The 7% defense budget increase is higher than China’s GDP target of 4.5-5%—the lowest in decades—but lower than the 7.2% increases seen in the previous three years. The PLA is also in the midst of a sweeping purge, with nine senior military officials recently ousted, raising questions about its command structure and readiness for any Taiwan contingency.
“It will be reckless for Xi to order an invasion unless he is absolutely sure the U.S. cannot interfere and victory is assured and at relatively low costs,” said Prof. Tsang. “He has not been reckless in the last 13 years.”
Political winds are shifting in Taiwan as well. The ruling Democratic Progressive Party is struggling with low approval ratings and a deadlocked legislature, while the opposition Nationalist Party is gaining traction with a platform favoring closer ties to Beijing. The mercurial nature of U.S. policy—spotlighted by the Iran war—has cast doubt on Washington’s security guarantees, making some in Taiwan more receptive to conciliation.
Despite the saber-rattling, the main focus of China’s NPC session was on reviving the country’s troubled economy—tackling unemployment, a depressed real estate market, and boosting innovation. And with Xi Jinping and Donald Trump scheduled to meet at the end of March, there are hints of a partial easing of trade frictions between the world’s two largest economies.
As the dust settles—if only temporarily—on the battlefields of Iran and the halls of Beijing, the world watches anxiously. The war’s reverberations have upended assumptions, exposed vulnerabilities, and reminded all sides that in today’s interconnected world, no crisis remains contained for long.