You Bet Your Life (Insurance): U.S. Private Equity Comes For Your Annuity – Analysis

March 4, 2026 
By Eileen Appelbaum


There are signs that private equity’s destabilizing role in the insurance industry is growing.


In 2020 and 2021 (as we wrote at the time), large private equity (PE) firms were buying up life insurance companies to gain control of their huge annuity assets. Insurance companies had invested the premium payments for clients’ retirement savings in safe, publicly traded and highly liquid stocks and bonds. But years of low interest rates crippled this asset business, and the returns on these investments were no longer adequate to fund the required annuity payments.

As a result, insurance companies were anxious to unload their annuity portfolios. Large PE firms saw an opportunity to quickly increase their assets under management by acquiring or taking control of managing these annuity assets.

An annuity is a long-term contract with an insurance company that provides retirement income to individuals, who pay a premium that is invested by the insurance company and grows tax-deferred. When the individual grows old, they receive regular payments that fund their retirement. Annuities are attractive to private equity firms because they are a source of ‘permanent capital’ that replenishes as premium payments flow in and offset outflows to recipients of annuity payments. PE firms were confident they could increase returns on these assets and make them profitable by investing some of these annuity assets in illiquid private market equity buyout and credit funds. Smaller PE firms also got involved by buying up smaller insurance companies.

At the end of 2020, PE firms controlled $471 billion (nearly 10 percent) of annuity assets and had acquired 50 of the 400 annuity companies in the US. Apollo, which had a majority stake in Athene, the life insurance company it had founded in 2009, acquired all of its annuity assets In 2021 — worth about $194 billion at the time. Apollo said that it planned to invest about 5 percent of Athene’s funds in riskier, fee-paying alternative assets, including its own PE and debt funds. In 2021, Blackstone paid $2.2 billion to American International Group (AIG) for a 9.9 percent stake in its life insurance and annuities unit and gained control of the investment decision of much of its portfolio of annuity assets. Blackstone also struck a deal in 2021 to buy a life insurance unit of Allstate Corporation. As a result of these transactions, Blackstone’s insurance assets under management reached $150 billion by the end of 2021. The insurance assets it controls accounted for a third of Blackstone’s overall assets under management that year. In July 2020, KKR announced it was buying the life insurance and retirement income company Global Atlantic Financial Group for $4.4 billion and taking over management of about $70 billion of Global Atlantic’s assets. The deal raised the assets KKR managed on behalf of insurance companies from about $26 billion to more than $96 billion, and increased KKR’s total assets under management by 30 percent.


Fast forward to the fall of 2025, and we see that this trend towards investing in private assets is intensifying. According to Mark Friedman of PwC, there has been a seismic shift; he reports that a recent survey found close to three-quarters of insurers now own private assets, and a second survey of 410 insurance companies found that 91 percent planned to increase their allocations to private markets over the next two years.

Indeed, Apollo, Blackstone, KKR and their rivals have loaded up their own annuity businesses with private credit investments. And clients holding annuity contracts have found themselves with increasingly risky assets. Back in 2020, risky private investments made up a small share of annuity asset investments. But this proved to be a successful strategy, boosting the returns of the life insurance companies owned by the large PE firms — enabling them to undercut rivals and increase market share. Other life insurance companies soon followed, including traditional companies like MassMutual that now hold a large number of private market illiquid bonds.
Murky Level 3 Assets Add More Risk

Fueling concerns about these investments is that they include so-called Level 3 assets. The lack of transparency in private equity and other private markets is well-known. But these illiquid assets are even more opaque; they lack reliable market pricing, and often have unreliable private ratings or no formal rating from a rating agency. There are no market mechanisms for determining the price of these assets or the amount of reserves insurance companies with these assets should hold.


PE firms express confidence in the ratings of these assets, but regulators and others question whether they are overvalued. In just a few years, investments in riskier assets that include Level 3 assets reached 18 percent of the insurance industry’s $3.8 trillion in fixed income holdings. Level 3 assets accounted for about a third of Athene’s and Global Atlantic’s total assets in the third quarter of 2025. The concerns that were raised a few years ago that annuity assets of PE-owned insurance companies would be used to bailout or boost the performance of affiliated private equity funds are no longer theoretical. The highly regarded AM Best insurance rating agency found that about a fifth of investments by Athene’s US Life Group and by KKR’s Global Atlantic now come from loans to affiliated funds. In particular, private equity-owned insurers are allocating a lot of their investments to affiliated credit funds.

PE-owned insurers are, as the Financial Times put it, the lifeblood of private credit. This self dealing is also a concern. Are PE firms using annuity assets of insurance companies they own to provide loans to their affiliated private equity and private credit funds to shore up struggling portfolio companies, or distressed loans made by their credit funds? The lack of transparency makes it impossible to quantify.
The Serious Risks Facing Annuity Policy Holders

Evaluating PE investments is challenging because little reliable public information exists about how these firms invest insurance assets, making it difficult to gauge the effect on returns to beneficiaries. Moving annuity investments into private credit funds with Level 3 assets increases the risk that some of these investments will fail, slashing the retirement income of beneficiaries. It also provides PE firms with opportunities to earn high fees for managing the assets. These fees also reduce returns to annuity holders and may wipe out the added return to compensate annuity holders for the higher risk these assets carry. Level 3 loans are especially illiquid, making them more difficult to trade than other private market investments. This makes them difficult to sell to meet annuity retirement obligations as well as redemptions by policy holders in the case of a personal emergency or an economic slowdown and cash crunch.


The surge in redemptions in the fourth quarter of 2025 compared with the third quarter raised questions about whether some insurers might fail and leave their annuity policyholders dependent on reduced payments from state guaranty funds for retirement income. The International Monetary Fund raised another issue; their 2023 study found that PE-backed insurers have fewer liquid assets than is the case for all insurers, making them more vulnerable to an increase in corporate defaults and credit downgrades caused by a slowing economy.

The situation is rife with conflicts of interest, most notably PE firms providing valuations for credit funds with Level 3 loans and asking annuity holders to trust them. But even rated bonds can be problematic. Rating firms have conflicts of interest since they are paid by the companies whose bonds they rate. The ratings potentially understate the riskiness of the bonds. Regulators and others concerned about the financial stability of insurance companies and their annuity asset investments question whether this debt is riskier than the ratings indicate, meaning that insurers could experience unexpected losses, making them unable to pay promised benefits to people counting on annuities to fund their retirements. Opportunities for corrupt self-dealing are widely available as PE firms can use the insurance assets to shore up the finances of failing or struggling funds they own.
Cracks Emerging in Private Credit Funds

Evidence of potential problems arising from investments in private credit funds by insurance companies, whether owned by PE or not, are beginning to emerge. Unrelated problems at two life/annuity insurance companies have heightened concerns about the financial stability of private equity-owned insurers.

In 2015, PE firm Golden Gate Capital established Nassau Financial as a life insurance platform. In 2016, Nassau Financial acquired troubled life and asset insurance company Phoenix, among other companies, and renamed it PHL Variable Insurance Company. To reduce its liabilities, PHL entered several reinsurance deals with Nassau-owned or affiliated reinsurance companies based in Bermuda in 2019. But these deals failed to put PHL on a sustainable course. On March 31, 2025, the Connecticut Insurance Department (CID) took PHL into “rehabilitation” to try to restore it to financial stability. CID found that PHL had negative $900 million in capital and surplus, its assets will be exhausted in 2030, and it will be unable to pay approximately $1.46 billion owed to policy holders at that point. PHL’s auditor said it doubted the company could move forward as a going concern.

By December, it had become clear that PHL could not be rehabilitated, and CID turned to liquidation as the better option. The regulator found that PHL lacked enough assets to make restructuring a viable option, and that liquidation would lead to larger payouts to policyholders. In the meantime, until a final order determines PHL’s fate, policy holders are caught in a Catch-22. While CID sought to rehabilitate PHL, it froze more than $500 million of policyholders’ retirement income, leaving many of them in the lurch. To add insult to injury, policyholders had to keep their policies active. This meant policyholders had to continue paying premiums without knowing if they would ever receive the payments they were counting on to fund their retirement. This led to a steady increase in lapsed policies. These policy holders will not receive any benefits from the premiums they had paid for years or even decades. While those with active policies have continued to receive retirement benefits, All benefits will cease 30 days after a liquidation notice is released. Active policy holders will be eligible for reduced benefits from the state’s insurance guaranty program.


The second example involves Atlantic Coast Life (ACL), Sentinel Security Life (SSL), and Haymarket insurance. ACL and SSL are units of PE firm Advantage Capital, known as A-CAP. The asset manager is PE firm 777 Partners and Bermuda-based reinsurer 777 Re, whose principals are Josh Wander and Steve Pasko. 777 Partners began leveraged buyouts of soccer teams in Britain, France, Australia, Germany, Spain, Italy and Belgium, and quickly met resistance from managers and fans. Wander and Pasko spent millions of dollars acquiring stakes in European clubs, and some of that money allegedly came from the two insurance/annuity companies owned by A-CAP. In 2023, the empire of European clubs collapsed. Lawsuits filed against 777 Partners and 777 Re are asking for tens of millions of dollars in repayment. Corruption is also alleged by a London PE firm with a fund that focuses on investments linked to life insurance companies. The PE firm is suing Wander, Pasko and the CEO of A-CAP because 777 Re used $350 million it had committed to another company as collateral for a loan from the London firm. The implications for the PE-owned life/annuity companies in the US are not yet known, but are likely to be negative.

PE firm 777 has been in other trouble with regulators. In 2024, insurance regulators in Utah and South Carolina told five insurance companies to reduce their investments in 777 Partners because they were overcommitted to the PE firm and exceeded the maximum investment allowed.

Large PE firms that own insurance/annuity companies are nervous that the many small PE firms emulating their money-making ways will bankrupt the insurance companies they own — which they fear may bring down the lucrative house of cards they have built in the last 4 or 5 years. They don’t want regulators to turn their focus to the dangers of this use of insurance company assets to fund private credit funds. The company giving them angina is Acquarian, a small private equity firm founded in 2017. Acquarian plans to acquire Brighthouse Financial, a problem-ridden life insurance company with more than $230 billion committed to life and annuity policy holders. The deal is not yet final. Apollo and Carlyle, major PE firms, had previously looked into acquiring Brighthouse and decided against it after evaluating the challenges and demands of the company.


In November 2025, Aquarian made an offer to acquire Brighthouse at the eyebrow-raising price of $4.1 billion, double the valuation that other PE firms came up with. The concern is that companies like Aquarian and Brighthouse are using annuity assets to make ever more risky investments in order to break into a crowded field and gain market share. And they are right to be concerned. Regulators are raising questions about the difficult-to-measure risks to the financial system from this money-making PE business model in the private credit market.

Investors have already begun voting with their feet, dumping shares in the fourth quarter of 2025 in PE firms including Ares, Blue Owl, KKR and Apollo. Concerns that annuity investments may be overvalued have bubbled up over the past year. The triggering event for the wave of redemptions at the end of 2025 was a fear that many software companies that have borrowed from PE-owned private credit funds are vulnerable to AI and may not be able to repay the loans they took out. The lack of transparency surrounding private credit funds makes it impossible to evaluate just how vulnerable they are. But some investors are not waiting to find out.

Eileen Appelbaum

Eileen Appelbaum is co-director of CEPR and fellow at Rutgers University Center for Women and Work. She has held visiting positions at the Wissenschaftszentrum (Berlin), University of Manchester and Leicester University (UK), University of South Australia, and University of Auckland (New Zealand). Prior to joining CEPR, she held positions as distinguished professor and director of the Center for Women and Work at Rutgers University and as professor of economics at Temple University. She holds a PhD in economics from the University of Pennsylvania.

LIBERTARIAN ANTI-IMPERIALISM

The Iran War Exposes The Farce Of American ‘Representative Democracy’ – OpEd

March 4, 2026 
 MISES
By Ryan McMaken



The Trump administration has unilaterally—without any Congressional debate or vote, of course—forced Americans into yet another war. This time, the war is a large-scale military campaign against Iran. Was there any groundswell of public support for this war? Did the Congress vote to spend more American tax dollars on another war? Apparently not. According to a March 1 poll from Reuters, only 27 percent of Americans polled said they support the US’s new war on Iran. Needless to say, few Americans have been calling their representatives in Congress asking for yet another Middle Eastern war.

So, why is the US now at war with Iran? Not even the administration appears to know for sure. After the war had already begun, the White House repeatedly changed its stated rationale for opening hostilities against Iran. At the beginning the US regime had been claiming it wanted regime change in Iran to “liberate” Iranians. Yet, by Monday, when Trump listed his reasons for starting the war, he didn’t mention regime change at all. Rather, the administration now seems to have settled on claims that the Iran regime was creating a missile program that, somehow, endangers the United States. Yet, virtually no one believes that the Iranian regime has ever had long-range missiles capable of getting anywhere near US territory. Rather, the only “threat” to the United States is a threat to US bases which the US government has insisted on building 10,000 miles from US territory, and which have nothing to do with the safety of Americans in the United States.

On Monday, Rubio said that the United States began the war because the State of Israel planned to attack Iran, and that this would lead to Iranian reprisals against US bases. Rubio was essentially stating that Tel Aviv forced the US into the war. Trump today directly contradicted his Secretary of State—as well as the GOP Speaker of the House and GOP Senator Tom Cotton—and claimed “I might’ve forced their hand.”

Completely absent from all these confused and retroactive attempts to justify the war is any mention of the American people, their tax dollars, their freedoms, or even their alleged representatives in Congress. Nor is this surprising. The current war is a timely reminder that the US ruling elites regard the US taxpayers and ordinary Americans as little more than inconvenient afterthoughts in the formation of US foreign policy. At the same time, the US regime also claims to have the moral high ground precisely because the American regime is supposedly “democratic” with the support of “the people.”


Indeed, the Trump administration overall has helped make it abundantly clear that US elections and public opinion are almost completely irrelevant to the foreign policy. Throughout his campaigns, Donald Trump repeatedly claimed to be the peace candidate, announcing in his speeches that he would end wars, rather than start them. In the days before the 2024 election, the GOP posted this image in social media, clearly presenting the Trump administration as “the pro-peace ticket”:

Yet, less than a year into his second term, Donald Trump’s foreign policy looks largely indistinguishable from that of the foreign policy of Barack Obama or Joe Biden. Indeed, if the current war drags on, we’ll be able to say Trump’s foreign policy is reminiscent of the George W. Bush administration.

It was clear during the campaign that the Trump ticket was trying to take advantage of public sentiment which favored less US involvement in foreign wars. With American foreign policy, however, elections don’t matter. This was recently emphasized by the bumbling US ambassador to Israel, Mike Huckabee, in a recent interview with Tucker Carlson. Carlson began with a simple question for Huckabee:


Carlson: How much does it matter what Americans think?

Huckabee: Well, it matters every bit what Americans think.

Carlson then points out that about 21% of Americans support war with Iran. He asks Huckabee if that’s enough for the US regime to start a war with Iran. Huckabee states “We don’t live in a world where you have a poll taken to find out whether our policy should be in a particular direction…”

Carlson then points out that Huckabee had just said public opinion matters a lot and Huckabee says “we care deeply about it…”

Carlson: “If we’re ignoring it, in what sense to we ‘care deeply about it?’”

Huckabee then offers a non sequitur: “I think we care deeply when we see there’s a threat.” Huckabee then continued with more word salad in a desperate attempt to make a connection between public opinion and his preferred policy of repeatedly starting elective wars with Middle Eastern regimes that are no threat to the US population.

The reality, of course, is closer to Rubio’s explanation for the US’s involvement in the war: following the lead of the State of Israel.

This is apparently fine with Ambassador Huckabee, of course, who in his Carlson interview, was asked if Huckabee thinks the State of Israel has a “right” to take over most of the Middle East. Carslon stated: ”Does Israel have the right to that land?” Huckabee responded ”It would be fine if they took it all.”

And what if most Americans don’t share this opinion? Clearly, the US regime doesn’t care, and neither does Huckabee, or Donald Trump.


In spite of all the US regime’s posturing about “the will of the people” and “representation” in Congress, what really matters in Washington is serving powerful interest groups. The taxpaying public simply exists as a resource to be bled dry in favor of wars, protectionism, and federal spending which serves the ruling elite’s complex system of patrons and clients that keeps the elite in power.

When it comes to US foreign policy in the middle east, the dominant interest group is the State of Israel. This is executed through the American-Israeli Political Action Committee (AIPAC) and other elements of what foreign-policy scholars John Mearsheimer and Stephen walt call “the Israel lobby.” When Mearsheimer and Walt released their book The Israel Lobby in 2007, they were predictably accused of anti-semitism. Yet, the book was ahead of its time in describing how pro-Israel interest groups have been extremely successful in gaining financial, military, and strategic favors for Israel from US policymakers. It has all been done at the expense of American taxpayers. The result has been an American foreign policy elite that overwhelmingly favors incessant foreign intervention to favor a foreign state—the State of Israel—regardless of any concern for the cost borne by Americans or the potential for drawing the US into broader conflicts that do not in any way increase the security of the United States.

In 2007, The Israel Lobby seemed controversial to many. In 2026, it is merely a statement of the obvious—that US foreign policy is tailored to favor certain interest group, rather than the interests of ordinary voters. This, however, is how all interest group politics works. The voting public doesn’t matter, and it hasn’t mattered for a long time.

This is shown in empirical studies that have tried to find a connection between public opinion and actual policies favored in Washington. The connection is tenuous at best.

For example, in a 2014 study by Martin Gilens and Benajmin Page, the authors note that when it comes to “impacts on U.S. government policy … average citizens and mass-based interest groups have little or no independent influence.” Gilens and page note that “the preferences of economic elites … have far more independent impact upon policy change than the preferences of average citizens do.”

This can be seen in Trump’s own fundraising given how one of his biggest donors, billionaire Miriam Adelson, is notable for an extreme pro-Israel position. This is, not surprisingly, reflected in Trump’s foreign policy.

The final conclusions of Gilens and Page are clear:


In the United States, our findings indicate, the majority does not rule—at least not in the causal sense of actually determining policy outcomes. When a majority of citizens disagrees with economic elites or with organized interests, they generally lose. Moreover, because of the strong status quo bias built into the U.S. political system, even when fairly large majorities of Americans favor policy change, they generally do not get it.

Perhaps no group of “economic elites” is more influential in foreign policy than those who control campaign funds distributed through pro-Israel interest groups like AIPAC, or through the spending of wealthy individuals like Adelson.


Other studies have come to similar conclusions. For example, in a 2017 paper on voter preferences, John Matsusake concluded that legislator preferences don’t correlate with voter preferences:


[W]hen legislator preferences differed from district opinion on an issue, legislators voted congruent with district opinion only 29 percent of the time. The data do not show a reliable connection between congruence and competitive election, term limits, campaign contributions, or media attention. The evidence is most consistent with the assumption of a citizen-candidate model that legislators vote their own preferences.

There is, of course, no such thing as a “district opinion,” but the general idea is clear enough: if a legislator’s campaign war chest depends on pleasing a specific interest group, then the preferences of the voters don’t really matter.

Similarly, in a 2016 study from Michael Barber, he writes on how votes in the US Senate bear little relation to public opinion: “[S]enators’ preferences diverge dramatically from the preference of the average voter in their state. The degree of divergence is nearly as large as if voters were randomly assigned to a senator.”

So, if policymakers are largely independent of the voters who the policymakers ostensibly “represent,” then what determines federal policy?

The current war is just the latest reminder that pluralism is wrong and elite theory is right. There is no “we the people.” There is no “representative democracy.” And, when it comes to the big stuff like war, federal spending, and the central bank, elections don’t matter. It’s why, no matter who gets elected, US foreign policy proceeds more or less as usual, year after year after year.

This is why it doesn’t matter that only about one in four Americans is interested in being on the hook for yet another Middle Eastern war with no apparent benefits for any average American. This is why the administration continues to engage in shifting claims about the origins of this conflict. The administration knows that claims about Iran being a threat to the American people are not tenable, and are on the same level as claims about Iraqi WMDs. Nor can the regime just come right out at say “our pro-Israel funders told us to fight Iran.” So, we have Rubio telling us the war was a “preemptive strike” against the potential blowback from US-funded Israeli strikes on Iran. This explanation is already falling apart, which is why Trump now denies it.

In the end, the regime doesn’t even really need to come up with a plausible explanation. The political fallout will settle largely on the current administration, and this will have little effect on the real governing elite which remains in control regardless which party is ostensibly “in power.” 

About the author: 

Ryan McMaken (@ryanmcmaken) is editor in chief at the Mises Institute, a former economist for the State of Colorado, and the author of two books: Breaking Away: The Case of Secession, Radical Decentralization, and Smaller Polities and Commie Cowboys: The Bourgeoisie and the Nation-State in the Western Genre. He is also the editor of The Struggle for Liberty: A Libertarian History of Political Thought. Ryan has a bachelor’s degree in economics and a master’s degree in public policy, finance, and international relations from the University of Colorado. 

Source: This article was published at the Mises Institute

Pedro Sánchez Defies Washington To Win Spain

Spain's Prime Minister Pedro Sánchez. Photo Credit: La Moncloa

March 4, 2026 
EurActiv
By Inés Fernández-Pontes

(EurActiv) — Spain’s decision to bar the United States from using its strategically vital bases at Rota and Morón to support strikes on Iran has ignited fierce domestic backlash and raised wider questions about Madrid’s standing in Europe and its reliability within NATO.

The move, framed by Prime Minister Pedro Sánchez as a defence of international law, underscores Spain’s increasingly distinctive foreign-policy posture at a moment when Atlantic unity is under strain. Long a dependable – if sometimes reluctant – pillar of the alliance’s southern flank, Spain now risks appearing as an outlier as several European partners adopt a more cautious line towards Washington’s actions.

For decades, the naval base at Rota and the air base at Morón have symbolised Spain’s integration into the transatlantic security architecture. Rota hosts around 6,000 US personnel and several Aegis destroyers central to NATO’s missile-defence system. Together, the bases serve as crucial transit and refuelling hubs for operations in the Mediterranean, the Gulf and beyond.

By refusing authorisation for US tanker aircraft to operate from Spanish soil for the current mission – and by describing the strikes as “unilateral” – Sánchez has inserted Spain directly into a broader debate over the legality and legitimacy of Western military action in the Middle East.


Diplomatic ties between Madrid and Washington are already strained. Sánchez has emerged as one of the European Union’s most vocal critics of Donald Trump, condemning US and Israeli actions in Iran and Venezuela as breaches of international law. Over the past year, his government has imposed a total arms embargo on Israel, resisted calls to increase defence spending to NATO targets, and tightened oversight of US activities at the southern bases.
Trump weighs in

Whether the episode amounts to a lasting rupture remains unclear. Under the 1988 bilateral agreement governing the installations – which remain under Spanish sovereignty – any use beyond routine activities requires prior government approval. Analysts note that the United States is unlikely to relinquish facilities whose geographic position at the gateway to the Mediterranean is difficult to replicate.

Yet politically, the signal is unmistakable. At a time when NATO is seeking cohesion amid multiple crises – from Ukraine to the Gulf – Spain’s stance reinforces perceptions that Sánchez is prioritising domestic political consolidation over alliance solidarity, potentially complicating Madrid’s influence within Europe’s security architecture.


The repercussions for Spain’s relationship with Washington became clear late Tuesday in the Oval Office, where Trump left little doubt over his frustration with Madrid’s move as he threatened to cut trade ties with Spain.

“Spain doesn’t have great leadership,” he said. “We want nothing to do with Spain.”

The US president also signalled that if he wanted to use the Spanish bases, he would.

“Spain actually said that we can’t use their bases… which we could use if we wanted to,” he said. “We could fly in and use it, no one is going to tell us not to use it.”
Spanish sovereignty

Under the 1988 agreement, which rules the bases both under Spanish sovereignty, any use of the Rota and Morón bases beyond bilateral training exercises or maintenance requires prior authorisation from the Spanish government.

For decades, the bases have served as key US transit hubs for troops, equipment and fuel bound for the Middle East and Gulf. Rota – about 150 km from Gibraltar – is Europe’s largest US naval base, hosting 6,000 personnel and five destroyers central to NATO’s missile defence.

Spain “has never routinely monitored or supervised the use of these military bases” as it does now under Sánchez’ government, Félix Arteaga, a senior analyst at Spain’s Real Instituto Elcano told Euractiv.
Domestic troubles

In Madrid, Sánchez’s foreign policy stance is widely read through a domestic lens. Arteaga argues the ban on US base operations fits the broader strategy of Sánchez’s Socialist Party (PSOE) to cast the prime minister as the European leader “standing up to Trump”.


“Sánchez’s staunch opposition to the US president helps him consolidate a left-wing electorate within the PSOE,” Arteaga said, noting that this base has traditionally opposed US military presence and higher defence spending.

The PSOE-led government is under pressure after electoral setbacks in the past regional elections and corruption probes targeting the PM’s inner circle while far-left allies Podemos and Sumar have urged a tougher line on Washington and Israel.

Following the joint US-Israeli strike on Tehran last weekend, Podemos leader Ione Belarra demanded clarity over Rota’s role, and Sumar’s Lara Hernández denounced the EU’s response as “shameful”.

Meanwhile, the opposition conservative Popular Party accused Sánchez of “isolationism”. “Something is wrong when Hamas, the Houthis or the Iranian regime applaud the Sánchez government,” spokesperson Carmen Fúnez said.

Arteaga warned that while the stance may shore up domestic support ahead of the highly anticipated general elections next year, it risks distancing Spain from European consensus and deepening international isolation.

“From a foreign policy perspective, Sánchez’s stance is a disaster, but he benefits most from it domestically,” a veteran Spanish diplomat told Euractiv.

A country with a “serious” foreign policy would have followed the French and British, the diplomat said, explaining that Spain’s foreign policy is “highly dysfunctional” because there is no internal consensus within the coalition on the most basic issues.

From Water Stress To Water Bankruptcy: Urban India’s New Hydrological Reality – Analysis

March 4, 2026 
Observer Research Foundation
By Dhaval Desai


As the world wrestles with the existential threats posed by climate change, water is no longer a matter of managing a natural resource. It is now about urgently addressing the systemic and structural vulnerabilities that have emerged from the misuse of water over the centuries, especially as the definitions of water scarcity, water stress, and water crises, used hitherto to identify and respond to water issues, may no longer adequately reflect the severity of current global hydrological concerns.

The United Nations University Institute for Water, Environment and Health’s (UNU-INWEH) latest study has coined the term “water bankruptcy” to describe emerging trends in global water dynamics. The study, ‘Global Water Bankruptcy: Living Beyond Our Hydrological Means in the Post-Crisis Era,’ defines water bankruptcy as the near-permanent erosion of the natural resilience and recovery of water ecosystems due to the exploitation of water beyond its renewable capacity.

This new analytical framework has far-reaching implications for India, a country already dealing with escalating water deficits and complex water governance challenges.

Defining Water Bankruptcy: Beyond Scarcity, Stress, and Risks

The study identifies water stress as conditions in which, although demand overshoots the limits of available and renewable water supply, the impact on overall water availability is mostly reversible. Water crises, on the other hand, are mainly episodic, acute shortages caused by droughts or infrastructure failures, which can be managed through emergency responses. However, it defines water bankruptcy as a persistent post-crisis state in which water use consistently exceeds renewable freshwater inflows and the safe limits of natural storage depletion.


Such water bankruptcy results in the severe depletion of both ‘checking accounts’ and ‘savings accounts’ of this natural resource. Checking accounts refer to the natural replenishment of rivers, wetlands, and reservoirs over time. However, as recharge of natural water sources is inconsistent, replenishment of checking accounts can show extreme fluctuations relative to the long-term average in wet and dry conditions. Conversely, the savings accounts refer primarily to groundwater sources, including soil moisture, shallow groundwater, glaciers, and aquifers, where the replenishment often occurs over several decades to even millennia. The shrinking of such savings accounts leads to disproportionate social, economic, and environmental costs.

Simultaneous evidence of the depletion of both checking and savings accounts signals a worrying worldwide breach of thresholds in basins and aquifers, leading to water bankruptcy. The UNU-INWEH thus defines water bankruptcy as the persistent post-crisis condition, in which:Withdrawal from surface and groundwater sources (the checking and savings accounts, respectively) exceeds the renewable freshwater inflows and the safe limits of extraction of water reserves, and
The resulting degradation of natural capital causes irreversible damage to water availability.

The frequent recurrence of droughts, which were earlier episodic, is a clear sign of water bankruptcy, a direct result of the degradation of hydrological conditions to a point where recovery of water levels becomes nearly impossible. The study calls for an urgent, fundamental reset of the global water agenda, from knee-jerk emergency responses to focused, sustained bankruptcy management, by acknowledging the limits, embracing transparent water accounting, setting enforceable depletion thresholds, and prioritising the protection of natural water generation through aquifers and wetlands.

Global Indicators of Water Bankruptcy

The evidence of water bankruptcy is stark across continents, with multiple indicators highlighting irreversible pressures. For example, with 70 percent of aquifers in steady decline, the current dependence of 50 percent of global domestic supply and 40 percent of irrigation water on groundwater could be severely threatened, pushing the world deeper into an era of severe water insecurity. Already, an estimated 4 billion people experience severe water scarcity for at least one month each year, and nearly 75 percent of the global population lives in countries that are either water-insecure or critically water-insecure.

With over half of all large freshwater lakes steadily shrinking since the 1990s, more than 25 percent of the global population depending on those lakes could face heightened water insecurity. Several rivers now also fail to reach the sea, indicating altered hydrological connectivity.

India’s Hydrological Reality: Stress Meeting Bankruptcy

A water-bankrupt world has enormous implications for India, given its high dependency on groundwater, burgeoning demand, and an uneven spatial distribution of renewable water sources. India has an extractable quantum of about 407.75 billion cubic metres (bcm) out of its total estimated annual groundwater recharge potential of 448.52 bcm. However, the country currently extracts around 247.22 bcm annually, representing more than 60 percent of the national extractable threshold.


Groundwater supports 62 percent of irrigation and up to 85 percent of domestic water use, making it the backbone of both food and drinking water security. Such overreliance on groundwater is driving Punjab, Haryana, Rajasthan, and parts of the Indo-Gangetic plains toward “irreversible overexploitation.”

Urban water systems, already grappling with an ever-increasing demand-supply gap, experience intensified stress. For example, the “day zero” scenario witnessed in Chennai in 2019 and the increasing reliance on groundwater, especially through the rampant, often unregulated digging of borewells, characterise the overexploitation of groundwater beyond sustainable limits. According to NITI Aayog’s 2019 Composite Water Management Index, the demand-supply gap in urban India is estimated to reach ~50 BCM by 2030. Already, five Indian cities — Delhi, Kolkata, Chennai, Bengaluru, and Hyderabad — are among the world’s 20 most water-stressed cities. This situation could also pose a grave public health risk, with 8 million childrenunder 14 at risk due to poor water quality.

On the other hand, agriculture accounts for nearly 87 percent of all freshwater withdrawals. Water-intensive staples, especially paddy and wheat, promoted through subsidies and minimum support price (MSP) since the implementation of India’s Green Revolution in the mid-1960s, have contributed to this enormous demand. Consequently, emphasis on such water-guzzling crops in Punjab and Haryana, which are crucial to India’s food security and exports, has accelerated groundwater depletion.

Policy Imperatives for a Post-Crisis Water Era

The UNU-INWEH study calls for comprehensive legal, institutional, and policy changes to address the looming global era of water bankruptcy. Post-crisis water management, it insists, should: i) impose clear limits on withdrawal of groundwater, ii) target investments to restore natural water systems. These changes must also integrate new water realities into climate, food, and biodiversity policies. India must adapt these recommendations and urgently recalibrate its water governance.

First, India must reduce its focus on water-guzzling staples such as rice and wheat, and comprehensively transform its cropping patterns to include millets, the primary traditional staple for most Indians for centuries. Millets, with their high nutritional value, are often touted as a “one-stop solution” amid climate change, water scarcity, and drought. Millets need 70 percent less water than paddy. They grow about 50 percent faster than wheat. They also need 40 percent less energy to process. Channelling subsidies and raising MSP for millets can help India reduce groundwater extraction and strengthen overall resilience.

Second, India must immediately undertake sweeping reforms of its urban water systems and create a robust circular water economy by combining enhanced storage, wastewater recycling, and leakage reduction under an integrated water strategy. Cities must focus on demand-side management measures rather than solely investing in capital-intensive source-augmentation projects. For example, India generates over 72 billion litres of sewage daily but treats only about 28 percent of sewage. As a result, it discharges more than half (~52 billion) of untreated wastewater into waterbodies or allows seepage, polluting both surface water sources and groundwater aquifers. Supply-side measures to continuously augment the water supply will only worsen groundwater depletion and disbalance the surface water availability. India must use this situation to its advantage and adopt best practices from cities in developing economies, such as São Paolo (Brazil), Buenos Aires (Argentina), Dakar (Senegal), and Arequipa (Peru), to explore circular economy solutions.


Third, India must urgently consider an Atal Bhujal Yojana-Urban to replicate the successes of the existing rural India-focused, participatory Atal Bhujal Yojana (ABY) to leverage community-led groundwater management efforts to address the fast-depleting aquifers in its cities. The absence of a coordinated, mission-mode response to this catastrophic trend has led to fragmented regulations, leaving cities with limited technical capacity. Designing ABY-Urban to address the unique complexities of cities, with robust regulatory frameworks, compulsory aquifer mapping and digital monitoring, participatory governance, performance-linked funding of central schemes and missions, and integrating groundwater management with AMRUT 2.0, can signal a proactive national commitment to sustainable cities.

Conclusion

Addressing water bankruptcy begins with recognising how much the hydrological landscape has changed and what these shifts mean for the choices societies must make. It requires India to re-examine long-standing assumptions about availability, revisit patterns of use, and build policies that reflect the limits of its natural water systems. The window for course correction is narrowing, and India must act decisively to secure its water future.

About the author: Dhaval Desai is a Senior Fellow and Vice President at the Observer Research Foundation.

Source: This article was published by the Observer Research Foundation.

Observer Research Foundation
ORF was established on 5 September 1990 as a private, not for profit, ’think tank’ to influence public policy formulation. The Foundation brought together, for the first time, leading Indian economists and policymakers to present An Agenda for Economic Reforms in India. The idea was to help develop a consensus in favour of economic reforms.

THE ORIGIN OF THE STATE

Life After Mencho: A Shifting Landscape Of Organized Crime In Mexico – Analysis

Nemesio Oseguera Cervantes (aka “el Mencho”). Image: Grok

March 4, 2026 
Geopolitical Monitor
By Jose Miguel Alonso-Trabanco

As a phenomenon whose behavior is driven by long-range impersonal forces rather than whimsical vicissitudes, the evolution of organized crime in Mexico has proved to be quite dynamic and ductile. The latest progression of this fast-paced trajectory is the Mexican military operation in which Nemesio Oseguera Cervantes (aka “el Mencho”), nominal leader of the New Generation Jalisco Cartel (CJNG), was killed. As retaliation, his henchmen targeted private businesses, state-owned banks and security personnel. Cartel hitmen also disrupted transit through roadblocks in various highways, urban centers, rural communities and tourist spots across Mexico. Everyday economic cycles and recreational activities came to a halt in nearly half of the country, even in regions far away from the epicenter of these events.

This episode and its immediate aftermath have gone viral on a global scale through both mainstream channels and social media. As the dust is settling after the initial backlash wave, an atmosphere of tense calm prevails, at least for the time being, but the ghost of “el Mencho” is now haunting Mexico. To keep things in perspective, this man was no ordinary street thug. While his centrality had diminished due to ailing health, he had become Mexico’s most powerful and ruthless criminal warlord. Under his leadership, the New Generation Jalisco Cartel (CJNG) had risen —especially after the recent partition of the Sinaloa Cartel— as one of the world’s largest criminal empires. For the Mexican state, this operation represents a Zeitenwende which, after a hiatus of suspicious unresponsiveness, highlights both the material ability and the political will to engage nonstate antagonists, even if this confrontation comes with meaningful risks and costs. Once again, the gloves are off.
Profile of the New Generation Jalisco Cartel

The New Generation Jalisco Cartel was born as an offshoot of cells once tied to the Sinaloa Cartel, which later absorbed both minor regional groups from Western Mexico and paramilitary squads established to exterminate the so-called “Knights Templar.” These remnants joined forces to transform a second-rate subnational nonstate actor into a major criminal multinational empire with branches in most of Mexico, the US, Latin America, Europe, Asia, and even Africa.

The cartel’s governance model is a hybrid that integrates corporate and paramilitary components. Not unlike the diversification of the Japanese keiretsu, the CJNG was involved in various profitable operations, including drug trafficking (especially fentanyl), clandestine mining of industrial and precious metals, extortion rackets, cybercrime, fuel contraband, human trafficking, the control of cash crops, and the systematic predation of all sorts of businesses, as well as money laundering schemes. This spatial and economic expansion was facilitated by a strategy which enabled the integration of smaller surrogates. Therefore, rather than a vertical hierarchical pyramid, the CJNG is semi-decentralized network or constellation of criminal satrapies. This confederation has been strengthened through mergers, contractual partnerships and franchises. On the other hand, the CJNG has achieved substantive firepower, underpinned by the acquisition of assault rifles, RPGs, landmines, unmanned aerial vehicles (UAVs), anti-aircraft guns, and improvised explosive devices (IEDs). In the hands of assassins trained by military defectors and foreign mercenaries with experience in overseas warzones such as Colombia and Ukraine, these weapons have been wielded to orchestrate attacks against the Mexican armed forces, law enforcement, rival groups, and even unarmed civilians. The cartel is also notorious for embracing technological innovations such as AI, cryptocurrencies, and social media platforms.


Although it exists primarily as a money-making machine, this organization has followed an operational playbook that borrows the asymmetric tactics of nonstate militias such as terrorists, separatists, and insurgents. In this particular arena, the CJNG shares more common denominators with the Colombian FARC, Hezbollah, Blackwater, the Wagner Group and African nonstate militias than with old-school Italian mafias, Chinese triads or the Japanese Yakuza. Through the proliferation of armed violence and psychological warfare, the growth of this group has weakened the ability of the Mexican state to ensure the monopoly of force and the full-fledged control of the country’s territorial hinterland. Based on a zero-sum logic, such development represents a threat for both national security and the Westphalian sovereignty of Mexico. Finally, the hitherto unchecked metastasis of this problem would not have been possible without the organic complicity of elite political and economic enablers. As is known, the growth of organized crime necessarily requires the secretive collaboration of “friends in high places.”
Domestic Fallout from El Mencho’s Death

The fate of the New Generation Jalisco Cartel is unclear because the governance structure of organized crime is a fertile ground for a chronic backstabbing disorder. Considering existing precedents, strategic foresight suggests that four scenarios can be envisaged: 1) a smooth consensual succession, 2) a hostile takeover, 3) a bitter power struggle followed by violent balkanization or 4) a gradual disintegration.


What is certain is that the beheading of a large-scale criminal syndicate does not mean that the metaphorical hydra has been dismantled. After all, the removal of a CEO does not mean that the company he used to run has been extinguished. In the short term, the so-called “kingpin strategy” is useful to destabilize criminal networks and to restore deterrence through the demarcation of red lines. However, the Mexican state can leverage this turning point to undermine the cartel’s hidden financial infrastructure, introduce stricter customs enforcement mechanisms and go after the group’s “fellow travelers.”

In the long run, these measures could further the decline and fall of this particular criminal enterprise. Nonetheless, as serious security professionals know, the complete structural eradication of organized crime is unlikely because there are powerful incentives that guarantee the survival of this underworld ecosystem. In the case of Mexico, these include the gravitational pull of market forces, a dispersed geographical configuration, and a flourishing cultural industry that promotes the aspirational attractiveness of the narco lifestyle for young men and women through narratives, songs, fashion, Netflix productions, Instagram influencers, and even semi-religious rituals.

Yet the dismemberment of large organizations could de facto reshuffle the balance of power in a manner that favors the authority of the Mexican government. In the long run, the degradation and fragmentation of large criminal consortiums would make the problem more manageable through state-sanctioned coercion, containment strategies, backchannel negotiations, and informal agreements for the ordered redistribution of spheres of influence. The point is that the state can turn the tables with the ability to permanently keep in check these partially de-fanged criminal rings. Although kosher solutions (i.e. the rule of law, better policing, community crime prevention) are preferable in principle, the testament of history and Machiavellian wisdom teach that an expedient and effective pacification requires unsavory decisions. Bad must begin so that worse remains behind.

For the Mexican government, the elimination of “el Mencho” is a game-changing political triumph. This milestone represents a “clean break” from the puzzling policy of “hugs, not bullets,” followed by President Sheinbaum’s predecessor. Although the precise details remain obscure, the rationale behind the previous approach has been attributed to neglect, détente, and even transactional Faustian pacts. The liquidation of this “high-value target” is also helpful to restore the socio-political legitimacy and professional reputation of the country’s military and civilian security services.


Nevertheless, meaningful risks persist, including the prospect of asymmetric retaliatory attacks calculated to sabotage governance, public order, political stability, and economic exchanges. Military headquarters, senior policymakers, governmental facilities, foreign interests, corporate nerve centers, tourist attractions, symbolic sites, power plants, crowded entertainment venues and infrastructure projects could be targeted. The upcoming organization of three matches of the 2026 FIFA World Cup in Mexican cities opens windows of opportunity for such malicious purposes. The materialization of these hypothetical threats would lead to the loss of political capital, diplomatic credibility, economic benefits and “soft power.”

For an organization like the CJNG, the narco-terrorist attacks launched by Pablo Escobar against Colombian government officials and civilians are perhaps precedents worth replicating, especially considering its state-of-the-art expertise in kamikaze drones and targeted assassinations. In addition, the high-profile political associates of this cartel, who are being gradually sidelined by the current Mexican government, also have incentives to seek revenge. Readiness is therefore a major challenge for Mexican intelligence services, armed forces and law enforcement. On the other hand, the removal of a senior drug lord is expected to facilitate the progress of trade negotiations and the renewal of the North American geoeconomic bloc as a strong trilateral partnership conditionally undergirded by the securitization of strategic industries, supply chains, and critical minerals. For Mexican economic statecraft, access to the US consumer market as an engine of dynamism, manufacturing productiveness, industrial policies, technology transfers, and strategic-grade “nearshoring” investments remains an imperative.
International Dimension

Based on the new prescriptive strategic guidelines for national security and defense presented by the second Trump administration, the US geopolitical perimeter in the American hemisphere is now regarded in DC as a major priority. This redefinition is not just simply a new theoretical innovation masterminded by the US strategic community. Such perception is reflected in the recent capture of Venezuelan strongman Nicolás Maduro, the attempt to control Greenland and a hawkish foreign policy approach towards pivotal regional states with varying profiles, such as Panama, Colombia, Cuba and even Canada.

This strategic conception diagnoses that, in contemporary security environments (shaped by complex interdependence), resurgent interstate geopolitical tensions and emerging vectors of nonstate threats are increasingly entwined. In this view, Mexico is well positioned as a scalable bridge of interconnectedness through which problematic flows —synthetic opioids, illegal immigrants, triangulated Chinese goods, agents of foreign powers or nonstate actors— are infiltrating the US for hostile purposes. As US thinkers like Samuel Huntington and George Friedman have argued, the US and Mexico will likely collide due to diverging demographic and territorial interests. From this perspective, although a bit of chaos in Mexico is tolerable, a black hole of anarchy in a neighboring state with so many overlapping ties to the US is unacceptable. Washington cannot afford to let Mexico become a failed state because it fears the effects of potentially contagious spillovers, power voids and harmful externalities.

This is the context in which the official reclassification of fentanyl as a “weapon of mass destruction” and of Mexican criminal syndicates as “foreign terrorist organizations” must be understood. Under intermittent US diplomatic pressure and threats of both unilateral military interventions and coercive tariffs, the Mexican government has set aside ideological preferences and embraced a policy that blends strategic acquiescence, bilateral security collaboration, and appeasement. Out of pragmatism, the days in which there was little cooperation in the fields of defense, security, and intelligence are behind. Symbolically, the CJNG leader’s head on a silver platter is a better “sacrificial offering” than the meta-legal rendition of second-rate drug lords and has-beens. This accomplishment of this operation performatively telegraphs the US security establishment that Mexico is willing to do what is needed to restore its bona fide credentials as a reliable security partner. Furthermore, as an operational success comparable to the targeted assassinations of both Osama bin Laden or IRGC General Qassem Soleimani, the neutralization of the most wanted Mexican drug lord is a boost for the political ambitions of President Donald Trump and Secretary of State Marco Rubio. As the architects of the Trump corollary to the Monroe Doctrine, these senior GOP figures can leverage the incremental success of this new hemispheric security agenda to further their political projects.


Nevertheless, triumphalism on both sides of the border may be premature because things can get worse before they get any better. Mexican criminal organizations have proved to be exceedingly resilient. The downfall of major syndicates is usually followed by the rise of direct or indirect heirs, especially in faraway peripheral regions with a prohibitive topology. Moreover, as great powers scramble to advance their preferred versions of world order, the resulting security competition brings yet another layer of volatility and even encourages the emergence of wild cards. For example, if a regime change in Cuba occurs via a messy collapse rather than through a controlled demolition or a Richelovian deal, former regime personnel —including military and intelligence officers— may be recruited by Mexican criminal groups. Their experience with grey-zone tactics and irregular conflict in the operational theatres of contested flashpoints across the Global South (hardly transferable to legitimate business) makes them highly attractive. Aside from the self-evident economic benefits of choosing a lucrative workstream that handsomely rewards their tradecraft, there is also an incentive to join forces against the US as a common enemy.

In the worst-case scenario, such shadow symbiosis has the potential to generate a FARC-like hybrid threat in which the distinction between organized crime businesses and militant “anti-imperialist” struggle is blurred. With the firepower and cash of Mexican criminal syndicates and the Cubans’ expertise in all sorts of covert shenanigans, involvement in shady businesses and clandestine international connections, this nonstate “red menace” would be a force to be reckoned with.

For the most hardline and ideologically charged factions of the ruling coalition, increasingly alienated by the “impure” pragmatism of the Mexican head of state and the alignment of her administration to Washington’s orbit, the rise of this golem would be a good opportunity for revanchism. For extra-regional great powers interested in challenging the Americans, this revolutionary joint venture would mean a chance to fuel agitation in the most relevant state for US homeland security. This criminal mutation, under the theatrical facade of “popular resistance”, would deepen Mexico’s security crisis with a counterinsurgency nightmare. It is in Mexico’s best interest that the State Department and the upper echelons of the Cuban military apparatus manage to achieve a deal that ensures hemispheric security and regional stability.

This article was published by the Geopolitical Monitor.com

Geopoliticalmonitor.com is an open-source intelligence collection and forecasting service, providing research, analysis and up to date coverage on situations and events that have a substantive impact on political, military and economic affairs.

How exposed is China to the Hormuz crisis?

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By Newsbase March 3, 2026

A prolonged closure of the Strait of Hormuz would hit China’s energy security hard, threatening to sever roughly half of its crude imports and a significant share of its LNG supply.

WHAT: China could lose access to about half of its oil imports and roughly 30% of its LNG if Hormuz remains blocked.

WHY: Much of China’s Gulf crude and discounted Iranian barrels transit the strait, and replacing them would mean fiercer competition, higher prices and pressure on refiners and economic growth.

WHAT NEXT: Beijing is likely to draw on strategic reserves, seek alternative suppliers and intensify diplomatic efforts to restore flows if the disruption persists.

 

China is acutely exposed to a prolonged closure of the Strait of Hormuz. It is the world’s largest oil importer and it is also the world’s largest LNG importer, with a particularly heavy reliance on Gulf supply – both directly via Qatari LNG and Saudi crude, and indirectly, via sanctioned Iranian barrels whose flow would also be disrupted by a lengthy blockage, as well as broader fallout from the US-Iran conflict.

Tehran has been clear. “The strait [of Hormuz] is closed. If anyone tries to pass, the heroes of the Revolutionary Guards and the regular navy will set those ships ablaze,” Ebrahim Jabari, a senior adviser to the Revolutionary Guards commander-in-chief, said, according to Iranian state media.

The waterway handles around a fifth of global oil and LNG supply. For China, its closure cuts the country off from around half of the crude supply it typically imports. It is also equivalent to around a third of the total oil that China consumes. China also receives roughly 30% of its LNG via the Strait of Hormuz from Qatar. No surprise then that Beijing is urging Tehran to lift its blockade.

 

Oil exposure

In 2025, Chinese oil imports hit a record high of 11.6mn barrels per day (bpd). Of that amount, Saudi Arabia delivered 1.62mn bpd, according to state customs data. It was the country’s second-largest supplier after Russia, which delivered 2.09mn bpd.

A further 1.3mn bpd came from Iraq – shipments which also go through the Strait of Hormuz and around 930,000 bpd from Brazil.

Also listed among the top suppliers in the customs data is Malaysia, which is recorded to have delivered 1.3mn bpd. But there is a catch. That is more than double the amount of oil that Malaysia actually produces. In reality, much of that amount is believed to be redirected sanctioned crude, primarily from Iran. 

How does this opaque practice work? Iranian crude is typically loaded at terminals such as Kharg Island and transferred ship-to-ship in waters off Malaysia or in the wider South China Sea. During these transfers, tankers may disable or manipulate their automatic identification system transponders, obscure cargo origin in shipping documents, or change vessel names and flags. The cargo is then relabelled as Malaysian blend.

Tanker-fracking firms including Kpler, Vortexa and S&P Global Commodity Insights have repeatedly identified these “dark fleet” movements.

So how much Iranian oil does China in fact import? Though difficult to determine, Kpler estimates it amounted to 1.38mn bpd last year, which would put Iran in third place behind Russia and Saudi Arabia among China’s top suppliers.

First there is the obvious crisis that China will face in scrambling for alternatives to its loss of Gulf crude in the event of a lengthy Hormuz blockade, outbidding other buyers facing the same difficulty for cargoes. Higher prices will impact the economy, which is already on track to see a slowdown over the next two years, with the IMF predicting in mid-February GDP growth of 4.5% this year versus 5% in 2025.

Fortunately China has a buffer against supply shortages in the form of 900mn barrels of oil in storage, which is equivalent to about 78 days of consumption, which is not far below the 90 days recommended by the International Energy Agency (IEA) for major oil importers. Beijing made the stockpiling of oil a strategic priority over two decades ago, massively expanding its storage facilities as a hedge against any disruption in oil trade. In particular it was mindful of the risk of the US one day blockading the Malacca Strait – another marine chokepoint.

 

Losing discounts

The loss of Iranian crude is particularly painful, given the deep discounts at which those sanctioned barrels were being purchased. Recent estimates place the discount for Iranian Light at between $8-10 per barrel versus Brent. Smaller independent, so-called “teapot” refineries in China relied on that discount to make any money at all, as they traditionally operate on very slim margins versus their larger state-owned competitors.

This also follows China’s loss of discounted Venezuelan crude in January, following the US seizure of President Nicolas Maduro. Washington has lifted sanctions on the country’s oil, but with the caveat that those supplies can only be bought and sold by US companies, presumably no longer at a discounted price. China took around 390,000 bpd of sanctioned oil from Venezuela in 2025, according to Kpler.

If the US and its allies can succeed in better enforcing sanctions on Russian crude – through targeting an increasing number of shadow fleet tankers and in some cases even detaining vessels, China would lose a further 800,000 bpd of sanctioned crude from Russia, as estimated by Kpler. 

 

Stronger on gas

In the case of gas, China’s situation is not so precarious, though it still presents challenges. 

Firstly, China is not as exposed to international LNG markets as it is to international oil markets. The country relies on LNG imports only to cover around one-fifth of its gas demand, with the rest covered by either domestic production or stable pipeline supply primarily from Russia and Central Asia. Secondly, natural gas is a relatively small part of its energy mix — around 7-8% versus 18-20% for oil and oil products. Thirdly, its gas inventories are also fairly high though not as high as its oil stockpiles, at around 50 days. Fourthly, it can always fall back on domestic coal in power generation if global gas supply is scarce and exorbitantly expensive. 

China also can fall back on its US LNG supply contracts to ease the loss of Qatari shipments. Although it has avoided direct US LNG imports since placing a tariff on those supplies amid trade tensions with Washington a year ago, Chinese companies still hold long-term US contracts totalling around 25mn tonnes per year, with a significant portion of these deliveries scheduled to begin this year. Any US imports China is currently contracted to receive it simply resells to Europe.

Secondly, China can tap increased supplies from Russia’s Arctic LNG-2 plant. Despite US sanctions on the project, it began taking cargoes last autumn. Limited by Arctic shipping constraints, it could ramp up those shipments to around 4mn tonnes.