Commentary: How Green Tech Shields China From the U.S.-Iran War

1. A month after the outbreak of the U.S.-Iran war, the unprecedented blockade of the Strait of Hormuz has caused significant turbulence in global energy markets. With the conflict showing no signs of resolution, geopolitical risk premiums are climbing, prompting concerns about the impact on the global economy—particularly China, the world’s largest manufacturing hub. The main focus is on how supply shocks will ripple through and affect China’s economic stability and growth prospects. [para. 1]

2. China’s initial vulnerability to the Hormuz-induced energy shock is lower compared to other Asian nations due to its diversified and coal-heavy energy matrix. While Japan and South Korea are heavily reliant on Middle Eastern oil and gas, China relies on coal for 58% of its primary energy needs in 2026, with oil accounting for only 20.3%. Furthermore, China has a high electrification rate of 35.3%, well above the global average. As a result, only about 4% to 5.4% of China’s total energy consumption is directly impacted by disruptions in the Strait of Hormuz, thanks in part to alternative shipping routes through the Red Sea. [para. 2][para. 3][para. 4]

3. China’s import structure provides further resilience. Approximately 20% of its crude oil imports are refined and exported as petrochemical products, providing Beijing with flexibility to prioritize domestic energy security over exports in times of crisis. This can help cushion domestic consumers from the harshest effects of global shortages, although it means that other countries dependent on Chinese exports may feel the pinch instead. [para. 5]

4. Despite these buffers, China faces considerable challenges if the U.S.-Iran war is prolonged. Persistently high oil prices—potentially ranging from $80 to $100 per barrel—could reduce global GDP growth by up to 0.8 percentage points, which would undermine demand for China’s exports. As exports constitute nearly 20% of China’s GDP, a global slowdown and reduced purchasing power present serious risks for economic stability. [para. 6]

5. Additionally, the crisis exposes vulnerabilities in the Pan-Asian supply chain, where nearly 80% of Chinese outbound foreign direct investment is concentrated. Many of these supply chain partners in Southeast and South Asia are emerging economies with limited financial resilience, and they are less capable of weathering the shocks from sustained oil shortages. The resulting supply chain disruptions could manifest as stalled production, late deliveries, and rising costs—threatening the region’s tightly integrated manufacturing networks. [para. 7]

6. Domestically, Chinese companies are already facing rising input costs, leading to a “cost scissors” effect: while upstream sectors like metal smelting may profit, downstream industries such as textiles and cars, which lack pricing power, are pressured by shrinking profit margins due to escalating raw material prices. Early crisis data already show significant margin compression for downstream manufacturers. [para. 8]

7. On the upside, the structural shifts triggered by this turmoil may benefit China in the long run. The crisis could hasten the global transition to renewable energy—a sector where China has established dominance. As of 2024, China’s renewables made up over 10% of energy consumption, its reliance on imported oil has stabilized at about 70%, and it has surpassed its own non-fossil fuel adoption targets. Diversifying energy import sources, especially via pipelines from Russia, Central Asia, and Africa, further strengthens Beijing’s energy security. [para. 9][para. 10]

8. Globally, the energy crisis is boosting demand for Chinese green technologies. China commands 54.9% of global lithium battery exports, 86.4% of solar module production, and nearly a quarter of electric vehicle exports. Due to its massive scale, China’s clean electricity costs are 11%–64% lower than international competitors, and forthcoming policy plans are expected to deepen its green tech advantage. [para. 11][para. 12]

9. In summary, the U.S.-Iran conflict is a severe test for China’s economy, exposing short-term vulnerabilities in profit margins and regional supply chains. However, it also accelerates the global shift to renewable energy, a domain where China is poised to secure even greater dominance. Thus, the structural transition to green energy could become China’s most effective economic shield against future geopolitical shocks. [para. 13]

10. The article is authored by Yi Huan, Chief Macroeconomist at Huatai Securities. The views expressed are those of the author and do not necessarily reflect official positions. [para. 14][para. 15]