China Emerges as Major Economic Winner Amid Iran Conflict and Hormuz Strait Closure
The ongoing conflict in Iran and the effective closure of the Strait of Hormuz over the past three months have severely disrupted Asian economies, causing sharp increases in energy, fertilizer, and chemical prices. However, a detailed report by the Washington-based consultancy Asia Group reveals that China has managed to avoid inflationary pressures and political instability that have plagued its regional competitors, thereby strengthening its position as a competitive and stable global manufacturing hub.
Asia relies heavily on the Middle East for energy supplies, with 80% of its oil and 90% of its natural gas passing through the Strait of Hormuz. The closure of this critical passage caused global energy prices to soar and disrupted supply chains for essential raw materials such as naphtha, helium, and sulfur, which are vital for producing plastics, semiconductors, medical devices, and electric vehicle batteries. Despite continued dependence on imports of these materials through the strait, China leveraged its reserves of oil, gas, and clean energy, alongside export restrictions and quotas on local refineries, to reduce its oil imports by over 30% year-on-year in May. This strategy helped stabilize domestic prices and left more supply available globally.
Kurt Campbell, Asia Group's chairman and former U.S. deputy secretary of state, stated, "It is hard not to conclude that China is the winner here," highlighting Beijing's effective use of price controls, export management, subsidies, and currency policies to mitigate shocks. In contrast, other Asian countries faced severe economic and political turmoil: India experienced political unrest due to soaring fertilizer, fuel, and food prices threatening its agricultural workforce; Japan's fuel subsidies strained its fiscal budget and supply shortages delayed car production; and Southeast Asian nations, heavily reliant on energy imports, resorted to emergency loans and declared energy crises.
The crisis has also driven Southeast Asian countries to increase reliance on China for solar panels, energy storage systems, and electric vehicles, sectors where China dominates and has seen export surges. This trend may slow the global shift of manufacturing away from China. While the U.S. is less directly affected due to domestic energy production, the report warns of negative impacts on its AI industry caused by supply chain disruptions in semiconductors and related components.
Although a temporary peace agreement under the Trump administration allowed some resumption of traffic through the Strait of Hormuz, recent escalations between the U.S. and Iran cast doubt on lasting stability. Analysts warn that even if hostilities subside, the persistent threat to free navigation will increase shipping insurance costs and force longer, more expensive routes. Campbell also cautioned that energy reserves in countries like Japan and South Korea are depleting rapidly, leaving them vulnerable to future shocks.
