At the end of February 2026, following military strikes by the United States and Israel against Iran, tensions in the Middle East escalated rapidly. Subsequently, regional energy facilities, ports, and maritime transportation links continued to face disruptions, and the transit capacity of the Strait of Hormuz declined significantly. By April 13, the US announced the implementation of maritime restrictions on vessels entering and exiting Iranian ports, further driving up the market’s pricing of Middle East energy transportation risks. This arrangement primarily targets shipping directly related to Iranian ports and does not legally impose a blanket ban on all vessels with non-Iranian destinations passing through Hormuz; however, in practical terms, shipowners, insurance agencies, refineries, and traders have generally been evaluating and making decisions based on the assumption that the waterway is in a state of “high risk, low availability, and subject to renewed disruption at any time.”
The Strait of Hormuz bears one of the most critical oil and gas transportation functions globally. The strait normally carries about one-fifth of the world’s oil shipments and holds systemic significance for Gulf LNG exports. With transportation impeded, port operations restricted, and military risks rising, the price of Brent crude oil has climbed back above $100/barrel. European spot crude oil quotes once approached $150/barrel, while prices for natural gas, aviation fuel, diesel, and fertilizers have risen synchronously.
From the perspective of global trade, the impact of this conflict has already exceeded mere fluctuations in oil prices. In its March 2026 “Global Trade Outlook and Statistics,” the World Trade Organization projected that the growth rate of global merchandise trade volume in 2026 would be approximately 1.9%; under a scenario of sustained high energy prices, this growth rate could further drop to 1.4%, and the growth rate of services trade could also fall from 4.8% to 4.1%. Changes in the Middle East situation are continuously transmitting pressure to the global economic system through energy, freight rates, insurance, industrial costs, and policy expectations.
I. How exactly does this conflict impact global trade?
1. Prices of oil, gas, and basic industrial products Following the escalation of the situation, the prices of crude oil, LNG, LPG, and some petrochemical raw materials rose rapidly, with risk premiums in the spot market climbing even faster. Brent crude oil has climbed back above $100/barrel, and the prices of natural gas, aviation fuel, diesel, and fertilizers have also moved upward synchronously. The International Monetary Fund, the World Bank, and the International Energy Agency have warned that if countries continue to hoard energy or add export restrictions, global inflation and food risks will rise even further.
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2. Shipping and Insurance The maritime restrictions announced by the US on April 13 primarily target vessels entering and exiting Iranian ports, and do not legally impose a blanket ban on all vessels with non-Iranian destinations passing through Hormuz. However, in practical terms, the waterway is already being treated by the market as a high-risk zone. Whether shipowners accept voyages, whether insurance will cover them, and whether ports can maintain stable operations are collectively affecting the shipping pace in the Gulf region and the efficiency of global energy transportation.
3. Internal Dynamics of the Industrial System Following the rise in energy and transportation costs, chemicals, steel, glass, cement, aviation, shipping, and heavy manufacturing will be the first to be affected. The pressure will subsequently spread to automobiles, electronics, semiconductors, pharmaceutical packaging, and food processing. The changes businesses face are not just more expensive raw materials, but also slower deliveries, heavier inventories, and squeezed profit margins.
4. Inflation Expectations and Monetary Policy Rising oil and gas prices will drive up the costs of transportation, power generation, and industrial production, eventually feeding into consumer prices and corporate business expectations. Once imported inflation persists, the pace of interest rate cuts that major economies might have otherwise advanced will need to be re-evaluated, and the period during which financing costs remain high could also be prolonged.
5. Repricing of Global Trade and Capital Economies with high dependence on energy imports, limited alternative shipping routes, thin strategic reserves, and low energy elasticity in their supply chains will feel the impact of this shock earlier. Countries and enterprises that possess alternative supplies, alternative ports, and stronger export capabilities will see an increase in their bargaining power. The previous logic that heavily emphasized efficiency and cost is shifting toward a reassessment of security, continuity, and execution costs.
II. Impact on China: The Coexistence of Weakening External Demand, Increased Inventory Replenishment, and Structural Divergence
As one of the world’s largest manufacturing nations and the largest energy importer, China is highly sensitive to external demand, shipping efficiency, and raw material prices. Following the restricted transit through the Strait of Hormuz, it faces a set of data fluctuations that are moving in different directions but are deeply interconnected.
In March 2026, exports grew by only 2.5% year-on-year, significantly lower than the 21.8% growth rate seen in January-February and below market expectations. Imports surged by 27.8% year-on-year, and the trade surplus narrowed to $51.13 billion. At the same time, the manufacturing PMI for March rebounded to 50.4. Looking at these indicators collectively, external demand has begun to slow, corporate inventory replenishment behavior has increased, the industrial production end remains resilient, and the performance of different sectors has clearly diverged.
- Export End: The growth rate fell to 2.5% in March, indicating that external markets have already felt the pressure from rising energy prices, shipping costs, and elevated uncertainty. The escalation of the situation in the Middle East has weakened global demand and squeezed overseas purchasing intentions. The export support originally driven by AI-related products, semiconductors, servers, and green technology is no longer sufficient to fully offset external shocks. The breadth and depth of China’s exports mean it is often the first to perceive changes in global demand through orders, quotes, and delivery paces. Global buyers are becoming more cautious; rising energy costs and increased transportation risks are affecting procurement cycles and ordering paces.
- Import End: The import growth rate reached 27.8% in March, the fastest since late 2021. If viewed in isolation, this could easily be interpreted as a significant rebound in domestic demand. However, given the current environment, a more reasonable understanding is that price factors, raw material restocking, advance purchasing by some companies, and preparations for future energy and logistics uncertainties have collectively driven up the import value. The narrowed trade surplus indicates that foreign trade is shifting from a state of “strong exports, weak imports” to a new combination of “external demand under pressure, rising imports, and shrinking surplus.” Against the backdrop of rising energy and raw material prices, advance purchasing and inventory arrangements for certain bulk commodities provide short-term support. This shows the market is not passively awaiting the shock, but utilizing procurement and inventory capabilities to create a buffer.
- Energy Import Structure: China is the world’s largest energy importer, with Middle Eastern sources making up a high proportion of its crude oil imports. This means that as the usability of the Strait of Hormuz declines, its energy supply chain will inevitably be affected. In March, crude oil imports stood at 49.88 million tons, a year-on-year decrease of 2.8% (about 11.77 million barrels per day). The drop was not drastic, partly because cargoes had already been loaded before the strait disruptions, and the arrival pace has not yet fully reflected the new situation. Therefore, the March energy data reads more like the “first half of the shock,” and subsequent months will better reflect the true impact.
- Changes in Natural Gas and LNG: In March, China’s natural gas imports fell by 10.7% year-on-year to a total of 8.18 million tons, a low point in recent years. Among this, LNG imports were 3.68 million tons, dropping to the lowest level since April 2018. This reflects the declining attractiveness of high-priced spot cargoes, while also indicating a greater use of domestic supply and pipeline gas to replace some LNG demand. In March, 8 to 10 cargoes of LNG were even re-exported overseas because international spot prices were higher and domestic supply and demand were relatively stable. In the short term, there has been no “hard shortage of gas supply,” but rather a balance maintained through domestic production, pipeline gas, and inventory adjustments. This capability gives it better short-term buffering room than many Asian importing nations, but if the conflict prolongs and the winter restocking window advances, subsequent pressure will resurface.
- Supply Sources: Structural adjustments have already begun regarding supply sources. As Middle Eastern supplies face disruptions, China has significantly increased alternative purchases from Russia, Brazil, and other regions. The share of Middle Eastern crude in China’s imports has decreased, and imports of LNG and LPG have also fallen significantly. This approach of “substituting a single high-risk source with diversified sources” helps hedge against risks, but alternative procurement usually entails longer voyages, more complex trade chains, and higher spot premiums. For an economy as massive as China’s, with broad procurement channels and strong coordination capabilities, such adjustments remain feasible.
- Industrial End: Currently, the most crucial focus is not “whether operations can continue,” but “whether rising costs are beginning to erode profits.” The manufacturing PMI for March rebounded to 50.4, returning to expansionary territory. Post-Spring Festival resumption of work and production, order recovery, and some restocking activities supported factory activity. Both the production index and the new orders index improved, but the purchasing price index for raw materials rose synchronously. The rise in input costs is already becoming apparent, and energy price pressure is transmitting to the corporate operational end through raw material procurement. Factory output has not been immediately interrupted, but rising raw material, transportation, and energy costs are already squeezing the profit margins of some enterprises. For labor-intensive industries that already have low profit margins and rely on price competition, this change will create pressure much earlier.
- Industry Divergence: Pressure is further dividing across industries. High-tech, high value-added sectors, and those driven by AI investments still possess a degree of short-term resilience. Exports related to semiconductors, servers, green technology, and some electric vehicles remain bright spots. Conversely, labor-intensive, low value-added industries that are more sensitive to shipping times and overseas end-demand will feel order slowdowns and profit contraction earlier. What China currently faces is not a synchronized downturn across all sectors, but a deepening stratification within its export structure: products with higher technological content and relatively strong global demand are temporarily more stable, while traditional light industry and sectors reliant on the Middle East market are coming under pressure faster. This structural divergence will determine that subsequent export performance may not necessarily see a sharp aggregate drop, but average profit margins and the pressure felt by businesses may deteriorate first.
- Refinery and Refined Oil Chain: The operating rate of Chinese refineries slightly declined in March, as crude supply risks and somewhat weak demand jointly affected processing schedules. Exports of refined oil products fell, with shipments of diesel, gasoline, and aviation fuel all affected, partly due to fuel export bans. Following the export restrictions, domestic fuel inventories and output structures have changed. This indicates that as the external energy environment tightens, policy measures have been used to keep more fuel resources domestically to enhance internal buffering capabilities. For the foreign trade system, this adjustment helps stabilize the domestic market, but it also means that some export-oriented chains are giving way to internal stability goals.
- Financial and Policy Levels: New yuan loans in March stood at 2.99 trillion RMB, up from February but below market expectations; M2 money supply grew by 8.5% year-on-year, also below expectations. Under conditions of rising external uncertainty and cautious corporate business expectations, credit demand has not seen strong expansion. The market expects China to maintain supportive fiscal and monetary policies this year, but the room for further substantial easing is relatively limited. On one hand, external shocks require policies to provide a floor; on the other hand, if imported inflation and energy prices remain high, monetary policy must balance exchange rates, prices, and financial stability. Policies will continue to exert effort, but the pace will be more restrained, focusing on fiscal support, structural tools, and targeted buffering.
- Full-Year Perspective: A Reuters poll indicates that China’s year-on-year GDP growth rate in Q1 2026 might rebound to 4.8%. However, as the Middle East conflict continues, global demand weakens, and factory profits are pressured, the Q2 growth rate is expected to slip back to 4.7%, with full-year growth projected at around 4.6%. This set of figures illustrates that China still has policy and inventory buffers in the short term, as well as strong industrial organizational capabilities, but the drag of the external environment on growth has already begun to materialize. The pressure is first reflected in slowing export growth and shrinking profit margins, and may subsequently transmit to investment, employment, and corporate willingness to expand.
China’s advantages lie in its massive scale, abundant regulatory tools, and wide range of supply sources. Its pressures lie in its deep industrial chains, large foreign trade exposure, and high sensitivity to changes in global demand and energy prices. Therefore, in this wave of shocks, China will exhibit “data divergence signals” relatively early: exports will slow down first, imports will rise due to restocking and price factors, manufacturing activity will remain resilient in the short term, energy sources will begin restructuring, corporate profit margins will face pressure, and sector performance will further diverge. If the conflict is short-lived, these changes will mostly manifest as temporary disruptions; if the situation prolongs, the pressures on external demand, energy, and profits will gradually compound, and hedging costs will also rise.
III. Asia: The Region Hit Hardest Globally
Asia absorbs about 80-90% of the oil and 83% of the LNG flowing through the Strait of Hormuz, making it the most direct victim of the conflict. Over 84% of crude oil and 83% of LNG head to Asian markets, with China, India, Japan, and South Korea collectively accounting for approximately 70% of the oil flow.
The combination of high energy import dependency and export-oriented manufacturing means Asia faces fuel shortages, inflationary pressure, factory production limits, declining export competitiveness, and a significant slowdown in economic growth. Many countries have already implemented emergency measures: traffic restrictions, closing schools or office buildings, releasing reserves, shifting to coal/nuclear power, price controls, and even adjusting workdays. Asia accounts for roughly half of global manufacturing, and the energy shock is rapidly transmitting globally through supply chains (e.g., shortages of chemical raw materials and naphtha impacting semiconductors, automobiles, and electronics).
- Japan: The impact is the most severe. Japan is highly dependent on Middle Eastern oil, and its manufacturing sectors (like petrochemicals, automobiles, and electronics) are energy-intensive with a high import ratio. Reportedly, Japan’s strategic petroleum reserves can last for about 200-250 days, but in the short term, it still faces shortages of chemical raw materials like naphtha, directly affecting downstream industries. The government has released roughly 80 million barrels of oil reserves (equivalent to about 45 days of domestic supply)—one of the largest releases in its history—and is accelerating the restart of nuclear power plants to seek a long-term buffer. Simultaneously, it has implemented fuel price caps and subsidy measures. Its export-oriented economy faces the dual blow of supply chain disruptions and weak global demand, and its competitiveness may decline. If the closure of the strait persists, its economic growth rate faces downward pressure.
- South Korea: Closely following. South Korea’s oil and LNG imports are highly dependent on the strait passage, and its industrial production (such as semiconductors, petrochemicals, and automobiles) is energy-intensive. The government has expanded fuel tax cuts, raised fuel price caps, and imposed a five-month export restriction on naphtha to prioritize domestic supply. Concurrently, it has launched liquidity support measures, including an emergency bond repurchase program of about 5 trillion won, to stabilize the market and mitigate the shock of energy prices. The export competitiveness of high-tech sectors like semiconductors faces pressure, and there are downside risks to overall economic growth.
- India: Extremely high exposure. Its oil and LPG imports rely heavily on the Middle East/Strait, and domestic buffers are relatively limited. It has deployed emergency measures to prioritize gas supply for people’s livelihoods, but rising food and transportation costs are pushing up inflationary pressure. Fiscal and trade deficits may worsen, and economic growth faces significant downside risks. Fertilizer shortages further threaten agricultural seasonal yields, creating food security concerns for this agricultural powerhouse.
- Southeast Asian Countries (Philippines, Thailand, Vietnam, Indonesia, etc.): Reserves are relatively thin, and fuel rationing, flight adjustments, and economic activity restrictions have already appeared. Manufacturing and consumer demand in these countries are highly sensitive to energy, and supply chain disruptions amplify their vulnerability.
Overall, the demand-side shocks and supply chain transmission faced by Asia make it the most severely affected region globally. High oil prices may push up inflation and partially offset the positive boost from AI-related trade. The WTO warns that if the conflict is protracted, emerging markets in Asia will face a more severe risk of stagflation.