‘Demand shock’: China cannot escape the impact of a long Iran war, analyst warns
“China might be more resilient, but China is not resilient to a demand shock,” said Denis Depoux, a global managing director at consultancy Roland Berger.
“For example, if the economy is slowing down in Southeast Asia, if people stop using their cars because the government is asking them to work from home or they cannot afford to buy gasoline, then it would have an impact on Chinese refiners,” he said on Wednesday, on the sidelines of the Boao Forum for Asia.
China’s consumer goods factories cut output as Iran war sends costs soaring
Some Chinese producers are already feeling ‘intense’ strain as the conflict sends energy, logistics and raw material costs soaring
The disruption to shipping traffic along the Strait of Hormuz is starting to bite in China, where some manufacturers are reducing production due to soaring energy, raw material and freight costs.
Zhao, who runs a bicycle factory in Guangzhou serving clients in the United States, Middle East and Europe, has already put most export business on hold.
“We also cancelled all orders from Iran,” he said. “The cost of aluminium, a key raw material for bicycle production, has risen by 30 per cent.”
He is not alone. Zhang, a Chinese national who runs a facility in Vietnam supplying parts and accessories to appliance and car manufacturers, said his business had already had to extend delivery times due to rising logistics and raw material costs.
“The pressure from rising costs has become very clear this year,” he said. “Prices for iron ore, scrap steel, coking coal, copper and plastics have all continued to rise, directly pushing up our production costs.”
“The overall pressure on our business is significant, and the only real way to contain costs is to cut energy use wherever possible,” Zhang said. “Some of our raw material inventories will last only about three weeks. Once they run out, we probably won’t be able to take new orders for quite some time.”
With many vessels now diverting around the Cape of Good Hope to avoid the Middle East, voyages are taking 10 to 14 days longer and container shipping rates have risen by 15 to 20 per cent, according to Wang.
“More seriously, war-risk insurance premiums have surged five- to tenfold, with single-voyage premiums on some routes reaching several million US dollars,” Wang said.
“Manufacturers around the world are feeling the strain. For now, companies are trying to cushion the shock by reworking supply chains and improving efficiency, but the short-term pressure is clearly intense.”
Beyond the disruption to imports of metals and crude oil, another potential risk for Chinese producers is a shortage of naphtha – a key feedstock for petrochemicals such as ethylene and propylene.
“During extended disruptions, the real constraints become crude availability and refinery throughput.”
Cheong added that supplies of most substitutes for naphtha, including liquefied petroleum gas, are also affected by the Strait of Hormuz crisis. “In a prolonged disruption, substitution options are limited, and the system mainly adjusts by lowering operating rates,” he said.
Trump allows foreign ships between domestic ports to stabilise petrol costs amid Iran war
Major maritime unions warn move ‘would do nothing to reduce gasoline prices’ and risks undermining American jobs and national security
US President Donald Trump has announced a temporary 60-day suspension of the Jones Act, the century-old law that mandates cargo moving between domestic ports be transported on vessels built, operated and staffed by American citizens or permanent residents.
The waiver allows foreign-flagged tankers sitting idle in international waters to start transporting energy products between US ports immediately.
“President Trump’s decision to issue a 60-day Jones Act waiver is just another step to mitigate the short-term disruptions to the oil market as the US military continues meeting the objectives of Operation Epic Fury,” White House spokeswoman Karoline Leavitt said.
She added that the action “will allow vital resources like oil, natural gas, fertiliser and coal to flow freely to US ports for 60 days, and the administration remains committed to continuing to strengthen our critical supply chains.”
Iran’s new Supreme leader, Mojtaba Khamenei, said last week the closure of the Strait of Hormuz should remain a “tool to pressure the enemy”, in his first public remarks since taking office.
Foreign Minister Abbas Araghchi told CBS on Sunday that Tehran had been “approached by a number of countries” seeking safe passage. He said some vessels from “different countries” had been allowed through, without elaborating.
This has driven crude prices well above $100 per barrel at times, sharply elevating US petrol and energy costs while straining domestic distribution networks.
Trump is facing mounting pressure to rein in fuel costs, a key driver of how Americans judge inflation and the health of the economy. The rise in oil prices could hurt Trump and the Republican Party ahead of November’s midterm elections.
Senator Lindsey Graham, a Republican from South Carolina, wrote on X Tuesday that he had spoken to Trump about allies not stepping up and had “never heard him so angry in my life”.
The Jones Act, passed in 1920 after World War I, aimed to strengthen the US maritime industry, protect American shipping jobs and ensure a reliable fleet for national security and commerce.
Supporters, including some industry groups, contend the move could quickly ease supply bottlenecks and lower prices by allowing more foreign vessels. Critics, including major maritime unions, have argued it will do little to cut fuel costs and could undermine US shipping jobs and long-term national security.
“Waiving the Jones Act would do nothing to reduce gasoline prices. In fact, the primary driver of gasoline prices is the cost of crude oil, not domestic shipping costs,” said a joint letter by major American maritime trade unions, including the American Maritime Officers, to Trump last week.
“A Jones Act waiver would create opportunities for foreign-flag operators” that avoid US taxes, rely on “low-wage labour” and operate under weaker regulations, undermining American economic and national security interests, the letter added.
According to Colin Grabow of the Cato Institute, a think tank in Washington, the Jones Act “constrains transportation options and raises costs”, and despite being routinely defended the law “portrayed as indispensable to national security suddenly becomes optional when pressures mount”.
“By opening domestic routes to internationally flagged shipping, relief from the Jones Act would vastly increase the supply of vessels available to move American crude oil and refined products to US ports,” he wrote in an opinion published by Cato this month.
“That, in turn, would unlock new and more efficient supply chains”, he added.
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