China markets are offering investors shelter from the US-Iran war and oil price spike. How long can this last?

China’s stock market has been a beacon of stability amid the intensifying Middle East crisis. Now into its third week, hostilities in the Middle East seem to be having minimal impact on Chinese equities with the CSI 300 index flat over the past one month. In contrast, US (S&P 500), Europe (Euro Stoxx 50) and Japan (Nikkei 225) indices are all down by 2 – 6 percent over the same period.

Fig 1: Performance of global indices, 13 Feb – 17 March 2026

Source: Bloomberg, UOBAM, in local currency terms

This may come as a surprise given news headlines highlighting China as a top oil importer, not to mention the ongoing vulnerabilities of the Chinese economy. However, there are four key factors underpinning China’s resilience to the current oil supply disruptions and in particular, the closure of the Strait of Hormuz.

1. Increased oil reserves

China has been diligently growing its crude oil inventories in recent years. According to the US Energy Information Administration (EIA) estimates, crude oil inventories in China increased by as much as 0.9 million barrels per day on average between January and August 2025.

In fact, China’s stockpiling of crude oil had resulted in firmer prices despite global production outstripping demand last year. The country is now thought to be sitting on a stockpile of around 1.3 billion barrels, sufficient to last up to four months in the event of a flow disruption such as the one unfolding now.

2. Diversified oil suppliers

China’s oil and gas imports accounted for a significant proportion of the maritime traffic in the Strait of Hormuz. Before the war, about 40 percent of the roughly 15 million barrels of oil per day passing through the strait was headed for China. In addition, the strait was a transportation channel for LNG (Liquified Natural Gas) of which 30 percent was China-bound.

Fig 2: China’s crude oil and condensate imports by source, 2024

Source: Vortexa and Global Trade Tracker. ME refers to Middle Eastern countries

However, China has been gradually diversifying its oil imports away from the Middle East to include Russia, Brazil and Angola. Last year, although about half of China’s oil was sourced from Middle Eastern countries, Russia was the single biggest supplier, accounting for about 20 percent of China’s oil imports. Of the 2 million plus barrels per day of Russian oil transported to China, about 0.7 million barrels was via the ESPO oil pipeline, independent of the threat to oil tankers in the Strait of Hormuz.

3. Less reliance on oil

China’s energy mix is also not highly oil-dependent. Oil and oil products currently make up about 18 percent of its energy supply. Globally, this figure is closer to 30 percent. This suggests that any oil price shock will have less impact on China than on other major economies.

Instead, China remains heavily dependent on coal - close to 60 percent of China’s energy mix is coal-generated, the majority of which is locally-mined. Locally-sourced renewable energy is also on the rise. In 2024, renewable energy accounted for around a quarter of China’s power generation and met 85 percent of the country’s energy demand growth. This is providing China with much-needed energy security at a time of increased geopolitical instability.

This shift looks set to intensify. Given Chinese consumers’ dramatic shift into electric vehicles (EVs) – last year, over half of all new cars sold in China were electric – oil consumption could slow significantly over the next few years. At China’s annual Two Sessions meeting last week, a target was set for domestic oil consumption to peak by 2030, further reducing China’s economic dependence on oil imports.

4. Going green back in style

Also important in the medium term is China’s global dominance in the field of new energy technologies. Once the dust settles, this Middle East conflict and oil price spike will serve as a fresh reminder to countries around the world that they need to hasten their energy transformation. China, as a global leader in the production of EVs, solar panels, wind turbines, lithium-ion batteries, and critical mineral mining and refinery, is likely to benefit from this trend.

For example, as of 2024, over 70 percent of the world’s electric and plug-in hybrid vehicles were China-made.

A milestone was reached at the start of 2026 when China's BYD overtook Tesla as the world's biggest seller of EVs. EV sales numbers released in January showed that Tesla sold 1.64 million vehicles worldwide in 2025, 9 percent fewer than in 2024, and the second consecutive year of lower car deliveries. In contrast, BYD announced that its sales hit 2.25 million in 2025, a jump of almost 28 percent over the previous year. Having experienced the sharp rise in petrol prices, consumers making the leap to EVs can be expected to disproportionately benefit Chinese car brands.

A maturing economy

It is difficult to escape the fact that prior to the outbreak of war, macro data emerging from China, including the most recent industrial production and retail sales figures, pointed to a weakening of its economy. These numbers suggest that China’s manufacturers are being weighed down by structural pressures and falling domestic demand. Furthermore, we think that exports, which had been the biggest economic driver in 2025, will be more challenging this year on high base effects and slower global economic growth.

All this causes us to be cautious about China’s ability to grow at a similar pace to the past. This was also a sentiment reflected in the Five-Year Plan adopted by last week’s Two Sessions, which set the GDP growth target at “4.5 – 5.0 percent”, rather than “around 5.0 percent”.

Alternative dynamics

That said, the war has highlighted how, compared to the rest of the world, China has the potential to dance to a different tune. The country’s large oil reserves, diversified oil supply and lower oil dependency relative to other major global players suggest that its financial markets could be more resilient to war-induced volatility.

Given this, we believe that investors should retain some exposure to Chinese stocks, especially those in the technology, next-generation energy and industrials sectors. The Five-Year Plan also stressed China’s continued commitment to emerging technologies such as advanced chips, aerospace and robotics, which is expected to achieve an output value of over 10 trillion yuan by 2030 from last year’s 6 trillion yuan.

Furthermore, geopolitical conflicts can wreak havoc on AI and other new age industries where supply chains can be highly dispersed and complex. For example, since the outbreak of war, investors have sold down Korean chipmakers given their heavy use of helium imported from the Middle East. China’s strong commitment to technological self-reliance, investment in local infrastructure such as water and power, and direct access to many key materials, is another positive for the country in an increasingly unstable world.