Strategists at Goldman Sachs say that China’s economy is better equipped than most countries, including the United States, to handle the unprecedented oil shock caused by the ongoing conflict in Iran.
Economists at the firm estimate that the war will reduce China’s GDP by about 20 basis points, compared with a projected 40-basis-point decline for the U.S. economy.
Goldman attributes China’s relative stability to Beijing’s deliberate strategy of diversifying its energy sources.
In 2024, crude oil and liquefied natural gas accounted for just 28% of China’s total energy consumption, the lowest share globally, while renewable and alternative energy sources made up 40% of electricity generation during the same year.
China’s large petroleum reserves also help buffer the economy. Even if crude imports were entirely cut off, the nation has enough oil in strategic and commercial stockpiles to cover domestic demand for roughly 110 days.
Another element reducing China’s vulnerability is its reliance on multiple energy suppliers outside the Middle East, including Russia, Australia, and Malaysia, which lessens exposure to the Iran conflict.
The war in the Middle East has now passed the one-month mark, and crude oil prices have surged nearly 50% above prewar levels.
Rising energy costs are putting downward pressure on growth projections and stoking inflation concerns, with some economists warning of potential stagflation.
Wall Street analysts have also lowered earnings forecasts, reflecting the economic strain caused by the conflict.