China’sEconomyBetterInsulatedThanU.S.AgainstOilShock,GoldmanSachsSays

Drivers refuel their vehicles at a China Petroleum and Chemical Corp. gas station on Wanping Road in Shanghai on the evening of March 23, 2026. Photo: VCG

As the Iran war enters its fifth week, the navigation crisis in the Strait of Hormuz remains unresolved. Although three Asian countries have announced agreements with Iran to allow their vessels to pass, traffic through the strait is still running far below normal levels. Meanwhile, international oil prices are approaching the $110 a barrel mark.

Elevated oil prices are weighing on economic growth worldwide, exerting particularly heavy pressure on small, open economies.

Compared with its global peers, China’s economy is relatively shielded from the energy shock. According to a recent Goldman Sachs report, the investment bank lowered its gross domestic product growth forecast for China by 20 basis points due to the impact of high oil prices. By comparison, it slashed the U.S. forecast by 40 basis points and downgraded emerging Asian economies, excluding China, by 70 basis points.

Goldman Sachs cited several factors giving the Chinese economy a distinct advantage over other nations in weathering the oil-supply shock.

First is a diversified energy mix. By 2024, crude oil and liquefied natural gas accounted for just 28% of China’s primary energy consumption, ranking among the lowest levels globally. Furthermore, alternative and renewable energy sources—specifically nuclear, wind, solar, and hydroelectric power — now generate 40% of the country’s electricity, up from 26% a decade ago.

Second is the country’s growing oil reserves, encompassing both strategic and commercial stockpiles. Even in a hypothetical scenario where crude imports plummet to zero, China has amassed enough reserves to cover more than 110 days of oil consumption.

Third, China can continue to secure oil and natural gas supplies from non-Middle Eastern energy producers, such as Russia, Australia, and Malaysia.

A recent study by Fitch Ratings echoed these findings, noting that in a worst-case scenario, economic growth in South Korea, the U.S., and Turkey would take the hardest hit. China, meanwhile, would be relatively unscathed, ranking near the bottom of the list of severely impacted countries.

High oil prices affect economies on two fronts: growth and inflation. For China, the surge in oil prices could soon lift the country out of its producer-price deflation.

Goldman Sachs expects China to snap its 41-month streak of producer price index deflation as early as March, pushing the timeline forward by six to nine months compared with its previous projections.

Although investors are generally skeptical about the positive impact of cost-push inflation on Chinese equities, Goldman Sachs noted that historical data paints a different picture. Rising producer prices have often correlated with robust corporate profits and substantial share buybacks, even during periods when inflationary pressures were primarily driven by rising input costs, such as in 2011, 2017 to 2018, and 2021.

Since the outbreak of the Iran war, Goldman Sachs has revised China’s nominal GDP growth forecast upward by 0.8 percentage points. This adjustment provides a clear boost to corporate revenue growth and the profitability of upstream industries. It could also help shift the deflationary mindset that has restrained corporate behavior and consumer sentiment. All else being equal, lower real interest rates could support corporate capital expenditures and asset reallocation, driving funds away from cash and savings and into the stock market.

China is the world’s largest importer of oil and liquefied natural gas, but it is also the largest global investor in alternative energy, Goldman Sachs highlighted. This investment spans power generation methods and technologies, energy infrastructure — including very large crude carriers, power transmission, equipment, and energy storage facilities — as well as modern petrochemical plants.

The disruptions in the Strait of Hormuz have prompted nations to elevate energy independence, supply chain resilience, and social stability to national security imperatives. This dynamic is likely to further solidify China’s commitment to and support for alternative energy policies, potentially unlocking new revenue and profit opportunities for related Chinese companies both at home and abroad, according to the report.

Regarding whether Middle Eastern capital is flowing into Hong Kong due to geopolitical tensions, Goldman Sachs believes it is too early to draw conclusions. Strategic investment decisions typically require more than a month to finalize. However, some early indicators suggest that international funds may have recently entered the city.

The Hong Kong Interbank Offered Rate, or Hibor, has tumbled to a seven-month low, the bank noted. Despite stable southbound trading volumes following the outbreak of the Iran war, overall turnover on the Hong Kong stock exchange remains robust, and the local real estate market is seeing further recovery driven by the high-end segment.

However, Goldman Sachs cautioned that prolonged economic turbulence in the Middle East could hamper the ability of regional investors to deploy capital into Chinese assets. In recent years, Middle Eastern investors have been major players in both private and public equity markets.