Rising Security Risks Are Changing China’s Belt and Road Strategy

For much of the past decade, the Belt and Road Initiative (BRI)’s biggest vulnerability appeared to be debt. The present conflict in the Middle East is forcing Beijing to confront a different problem: physical risks to infrastructure. 

Even before the outbreak of conflict between Israel, the U.S., and Iran, security was a growing problem for the BRI. Militant attacks on Chinese personnel along the China-Pakistan Economic Corridor, persistent insecurity around Chinese-backed projects in parts of Africa, and the disruption of land trade routes following the Russia-Ukraine war had already forced Beijing to deal with security problems it was poorly equipped to handle.

China’s direct investment in the Middle East reached roughly $89 billion between 2019 and 2024. Energy terminals, seaports, and logistics corridors in Qatar, the UAE, and Oman are now sitting inside or near active conflict zones. That means Chinese capital is now concentrated in a region where military strikes, not borrower default, are the primary threat to project viability.

A preliminary analysis by AidData suggested at least 18 projects financed by China across six countries in the region are either affected or at serious risk, with loans behind them totaling over $6.5 billion. Three sites were struck directly, including the Dubai International Airport, Qatar’s Ras Laffan gas facility, and Oman’s Duqm Port.

China had already been adjusting before the current conflict. The BRI’s debt cases pointed to what could go wrong. Sri Lanka conceded a major port to a Chinese firm after loan repayments became unmanageable, but that wasn’t enough to prevent the country from defaulting on its debts in 2022. Zambia also defaulted on its sovereign debt and spent years negotiating with Beijing over repayment schedules. Pakistan’s massive debts in the Chinese-financed power sector have dragged on for years. 

In each case the core problem was the same: infrastructure loans that could not generate enough returns to cover repayment. As projects became liabilities, debt had to be renegotiated. China’s standing as a development lender took damage that it has spent years trying to repair.

Between 2016 and 2021, China’s annual lending commitments fell sharply, from more than $75 billion at the 2016 peak to around $10.5 billion in 2021, partly as defaults mounted and partly because Beijing tightened its screening of partner countries. Transport infrastructure – including road, rail, and bridge financing – replaced oil and gas lending as the dominant sector in China’s overseas loan portfolio. In energy, the shift moved toward renewables and smaller grid projects, what is often labeled as a “small is beautiful” turn in Chinese overseas finance. It was driven by pressures over coal financing and by the debt difficulties of several energy-sector borrowers. 

A review of over 20,000 projects found that China was steadily restructuring its overseas portfolio: distressed loans were renegotiated, high-risk borrowers were dropped, and governance standards were tightened. The BRI was not collapsing, it was becoming more selective.

Unlike fiscal risk, which can be renegotiated, conflict can physically disrupt infrastructure before projects generate returns or loans are repaid. Chinese projects in Iran following the Israeli-U.S. strikes illustrate this challenge. Beijing condemned the attacks, but it also cannot ignore the threat that Iranian actions pose to Gulf Arab states and shipping through the Strait of Hormuz, which leaves China in a difficult position. Iran remains central to the BRI’s westward connectivity, yet the spread of conflict has also increased risks for Chinese-linked projects in the UAE, Qatar, and Oman.

Security risks in Pakistan and along the Russia-Ukraine corridor sat at the margins of China’s strategic interests. In the Middle East they sit at the center, impacting energy infrastructure and maritime routes that China depends on directly. China’s growing commercial ties with the region make this harder to absorb quietly. Shipping through the Strait of Hormuz fell to roughly 5 percent of pre-conflict levels, and with Houthis simultaneously resuming Red Sea attacks, both of the Middle East’s major maritime corridors were blocked at once. 

Chinese firms have been expanding cloud and data center operations across Saudi Arabia, the UAE, and Egypt, fitting with Gulf governments’ push for digital sovereignty. When U.S. data center infrastructure was struck during the conflict, Chinese firms moved quickly to position their regional presence as the more stable option. Digital infrastructure in the Middle East carries a different risk profile than a port or railway, because it is distributed, faster to build, and less dependent on single-site concentration. 

On the financing side, the direction is similar. Gulf sovereign wealth funds have also been moving capital directly into China. In 2024, over 60 percent of sovereign investment flows into the country came from Gulf funds, totaling a combined $9.5 billion. Saudi Arabia’s Public Investment Fund alone signed $50 billion in agreements with Chinese firms. Capital structured this way spreads risk and reduces dependence on large state-to-state loans. 

China is no longer just the lender. It is increasingly the destination for capital, a structural shift that changes the risk calculus on both sides. The result is a gradual shift away from the classic BRI model of large state-backed infrastructure loans toward digital infrastructure, technology partnerships, and bilateral investment flows.

South Asia showed China the political costs of lending too much, too fast. Pakistan and parts of Africa showed the security costs of building in politically unstable environments. The Middle East is showing what happens when both pressures meet at scale, in a region central to China’s energy supply and trade. 

China is not stepping away from overseas infrastructure, but it is becoming more selective about where it builds and more cautious about physical exposure. That transition was already underway and the current conflict is only hastening it.