A way out of Hormuz? Beijing´s gamble on South American Foreign Debt
- Carlos Ricaurte-Orozco
- 21 hours ago
- 5 min read
Ever since the closure of the Strait of Hormuz to commercial shipping earlier this month, the global energy and financial markets have been shaken to their core. In a matter of weeks, the Iranian Government's aggression against Commercial Oil Shipping has caused a spike in the costs of Brent Crude to over $90, with further attacks against the Arab Gulf States threatening to only worsen these conditions.
Among the major clients whose oil crosses through Hormuz is China, with up to 4.6 million barrels of oil per day being moved throughout most of 2025. Despite the fact that the Iranian Government has ensured that the movement of some oil barges is maintained in spite of the conflict for some countries, the status quo in the Strait has already affected Chinese interests in the region.
In a matter of days, the benchmark freight rate for Very Large Crude Carriers (VLCCs) transporting Middle Eastern oil to China spiked by 94%, reaching around $423,736 USD every day. When pairing this with recent operations against military targets near critical oil infrastructure, such as Kharg Island, where 90% of Iran´s crude is processed, it serves to further undermine Chinese demand and interests in the broader region.
The current conditions in Iran ensure that the situation there has become increasingly precarious for Beijing. Despite this, a reduction of crude oil imports or allround demand for petrochemicals is not a real possibility for China.
For most of 2025, China´s oil demand sat at around 16.78 Million Barrels Per Day (bpd) while only producing around 4.3 million bpd domestically. In essence, Beijing only produces around a quarter of all the barrels it needs to function, with the rest being exported from sanctioned regimes like Tehran.
However, amidst such a tremendous scale of daily demand, Beijing is forced to eventually diversify its sources of oil. It is precisely here where South American Oil, specifically crude from Ecuador and Argentina, could serve as the next lifeline for China. This especially taking into account foreign debt, which is one of China´s strongest weapons when expanding influence in South America.
The case of Ecuador is a particularly understudied one, a reality that doesn't match its oil reserves. As of 2022, it stands with a proven oil reserve of around 8.27 billion barrels, making it the fourth largest reserve in Latin America. These reserves have also begun to be exploited massively, especially around strategic regions such as the Amazon in spite of domestic resistance. By this same year, Ecuador produced around 482,000 bpd, with the overwhelming majority of that (over 80%) being done through Petroecuador, a state-owned enterprise (SOE). The fact that Petroecuador and by extension most of the Ecuadorian petrochemical sector remains in public hands becomes particularly relevant upon understanding the bilateral relationship that Quito and Beijing share.
Former President Rafael Correa borrowed a total of $12 Billion USD from China, meant mostly for developmental projects. The subsequent governments under Lenin Moreno, Guillermo Lasso and currently Daniel Noboa have worked to repay this colossal debt, relying heavily on crude shipments to do so.
The current debt has greatly lessened, standing at less than $5 billion USD after some debt-relief agreements signed between the Government of Ecuador and the Chinese Development Bank (CDB) and the Export-Import Bank of China in 2022.
Nonetheless, it is not debt alone that dictates Chinese oil policy in Ecuador. Foreign investment also plays a key role. This foreign investment is carried out through companies such as the China National Petroleum Corporation (CNPC) whose recent deal with Petroecuador has secured around 20 million Bcf/d (billion cubic feet per day) of offshore natural gas through the “Campo Amistad” Project.
This would also include the $1.6 billion USD signed agreements between Petroecuador, the CDB, the CNPC and Sinopec, (another Chinese oil giant) for developments in the Ishpingo-Tambococha-Tiputini (ITT) Oil Field. What this means is a continued trend of financial dependence and deep entanglement between the Ecuadorian Petrochemical sector and Chinese financial capital.
From the standpoint of realpolitik, it provides Beijing with all the necessary mechanisms to resort to Ecuador for further crude demands, especially amidst the current crisis in Hormuz.
Much like Ecuador, the Argentine case study is mostly sidelined in favor of talk of its large foreign debt. Most of said debt comes from the International Monetary Fund (IMF), with the Argentine State owing a whopping $57.1 Billion USD to the Fund as of October 2025.
The staggering size of the total foreign debt has prompted the country to mobilize its oil and gas reserves, which are predominantly run by YPF, Argentina's oil SOE. The reforms enacted by the current government under Javier Milei have also pushed the country to ramp up YPF export and exploration contracts, predominantly around Shale Oil and Gas.
This becomes particularly relevant upon understanding that Argentina sits over the fourth largest reserves of shale oil in the world. The recent exploitation of the Vaca Muerta Formation, a shale oil field the size of Belgium, has led to an investment and extraction boom in the country. Estimates point out that its current 400,000 bpd of production could ramp up to around 2 million barrels per day in the near future.
With such a need for financing and investments to tackle the massive IMF debt, Beijing has filled the role as a leading lender and investor for Buenos Aires. As of 2026, over $23 Billion USD has been poured by Beijing into the country, with over $8 Billion of that financial capital going into petrochemicals and critical minerals alone.
China has also made clear its intention to profit off Vaca Muerta and the sheer amount of shale oil coming from there. Back in 2017, British Petroleum (BP) signed a joint venture with the Argentine firm Bridas, for further exploration into Vaca Muerta. Bridas is part of China National Offshore Oil Corporation (CNOOC) portfolio in Argentina.
This aforementioned joint venture with BP, is now called “Pan-American Energy”. This venture is also leading the way on the development of “Argentina LNG” (Liquified Natural Gas), a megaproject meant to process and export up to 12 million metric tons annually of shale oil coming from Vaca Muerta.
This $20 billion USD megaproject shall be done in cohesion with the aforementioned YPF and multiple other partners, yet would grant CNOOC unparalleled access into the extraction, refinement and exportation process of one of South America´s largest shale oil depositories.
This isn't to say that Ecuador and Argentina are China's sole options for crude within South America amidst the current crisis in Iran. After all, China has already poured equal amounts of massive financing into other countries such as Brazil and Venezuela, putting forward some $4.14 Billion and around $40 Billion worth of investments for both nations respectively.
However, the downfall of the Beijing-aligned dictator Nicolás Maduro in Venezuela and an upcoming set of presidential elections later this year in Brazil, ensure that the future of Chinese interests in these countries remains uncertain.
What is certain nonetheless, is the need to pay back foreign debt, which will constantly prompt further opportunities for influence and access to crude, as seen in Ecuador and Argentina. Meaning that, should the situation in the Middle East worsen, China will most probably resort to its trusty weapon, that being foreign debt and investment, to further entrench itself in the continent, seeking to monopolize its oil.
Thir article written by Carlos Ricaurte-Orozco, a Graduate Researcher focusing on Latin American Political Economy and Development for Florida International University. He has previously focused on the role of patterns of trade and foreign investment in the region.