How is China handling the unrest in the Middle East?

We are now in the fifth week of the conflict between the United States and Iran. Although the U.S. president has repeatedly stated that victory is near and that the situation will be resolved soon, tensions remain high and could escalate further, hurting the Dow Jones index and XAGUSD in the process.

On the one hand, U.S. airborne troops deployed in the region could be used in additional ground operations alongside the Marines and special forces, including the capture of Khark Island. On the other hand, Iran could respond through its proxies, the Yemeni Houthis, by blocking the Bab el-Mandeb Strait.

This helps explain why oil prices are not falling at all, despite the International Energy Agency’s decision to release 400 million barrels of oil onto the market.

For oil-importing countries, the situation is clearly a nightmare. India and Europe have already warned that the conflict in the Middle East is beginning to weigh on their economic growth. What about the world’s largest oil consumer, China?

The year got off to a strong start for China. According to the National Bureau of Statistics, profits for Chinese industrial companies surged 15.2% year over year in the first two months of 2026, marking a sharp acceleration from the meager 0.6% growth in 2025.

In terms of market performance, the Hang Seng and CSI 300 indices have fallen by about 6% and 5%, respectively, since the start of the conflict, compared to a drop of approximately 9% in the Stoxx 600, suggesting that so far, China is weathering the storm better than Europe.

This resilience is largely due to better preparation.

Specifically, China has amassed enormous oil reserves — around 1.4 billion barrels — enough to cover domestic demand for approximately three to four months if imports were to be completely cut off. In addition, government controls on fuel prices, the expansion of renewable energy, and the ongoing transition to electric vehicles help cushion the impact.

It also helps that, unlike Europe, China is not limiting its supplier base, including from Russia. On top of that, rising oil prices could accelerate the global adoption of electric vehicles, which would directly benefit China.

The problem, however, is that if the Middle East crisis persists, rising energy costs could drive inflation and slow global growth, which would inevitably hit China, given that exports — responsible for about a third of its economic growth last year — remain a key driver of its economy.

This article was written by IL Contributors at investinglive.com.