China's supply-chain self-reliance strategy tested by Middle East conflict

After the Iran conflict erupted, many analysts said China was better prepared than many large economies, citing ample oil reserves and a growing share of renewable energy in its energy mix. However, after six weeks of disruption in global energy markets, key input commodities for Chinese manufacturing began to face rising prices and supply disruptions.

Producer prices rise as supply disruptions spread

In March, China’s producer prices rose year on year, marking the first increase since 2022. Analysts described the disruption as more severe than during the COVID-19 era.

Beijing had hoped a two-week ceasefire with Iran announced by President Donald Trump on April 7 would hold. That outlook weakened after talks between the United States and Iran in Islamabad over the weekend ended without a deal. On April 12, Trump said the United States would deploy a naval blockade in the Hormuz Strait, aimed primarily at blocking ships entering and leaving Iranian ports.

Higher costs for plastics and advanced materials

Mr. Cameron Johnson, senior partner at Tidalwave Solutions, a supply-chain consulting firm in Shanghai, warned that the disruption could be more severe than during the COVID-19 pandemic. He said prices of some polyethylene in China have doubled, disrupting input materials markets for industries that rely on the plastic for bags, bottles and packaging.

Johnson also said prices of some carbon fibers—dependent on input materials from the Middle East and used in the automotive sector and consumer goods—have risen by 20%.

“Prices are rising across most input materials, especially items that are imported or previously in tight supply,” Johnson told the Financial Times. He added that the challenge is not only scarcity and tight supply, but also that businesses struggle to gauge when markets will stabilize again.

China’s exposure to Middle East supply

Before the Iran conflict began, China depended on the Middle East for about one-third of its oil imports and 25% of its natural gas imports. The region is also a source of methanol, polyethylene, sulfur and other petrochemical and agricultural commodities.

While China had not yet used strategic oil reserves, sharp increases in oil prices and delivery delays have started affecting a range of petrochemical and chemical products. The pressure is raising concerns among manufacturers and testing the resilience of China’s energy-security system built over many years.

Policy warnings and cost pressures

In a policy study published at the end of March, Peng Shaozong, a former official of the National Development and Reform Commission (NDRC), warned that China needs to prepare for worst-case scenarios amid a more complex and unstable external environment.

Peng, now vice-chairman of the China Economic Reform Association, said costs in energy-intensive sectors—including logistics, transportation, aviation, shipping and steel—have risen by up to 25%, eroding corporate profits and putting significant pressure on small businesses.

He said risks are also emerging in high-tech manufacturing, where disruptions to essential materials have started to appear. These include industrial gases such as helium, a key input for chip manufacturing and medical technology.

Helium prices jump

Analysts from Trivium China in Beijing said domestic on-site prices for some high-quality helium in China have surged by 110% since the Iran conflict began. They also reported that prices for some lower-quality liquid helium have risen by 65% from the start of this year to date.

Spillover into mainstream manufacturing and exports

Supply pressures are not limited to high-tech sectors. A plastic rack manufacturer in Wenzhou, eastern China, said raw-material prices rose sharply—especially for basic plastics—forcing the company to raise prices on all new orders for several products in April.

Mr. Zhu Yuelai, owner of a camping gear export business in Yiwu, Zhejiang, said prices for items such as tents and camping chairs may rise in the near term after fabric costs rose 20%.

In the oil and gas sector, state-coordinated enterprises have absorbed part of the price rise, meaning consumers have not yet borne the full impact of the price surge.

Energy-security response and export restrictions

Peng said China should use its oil reserves not only to respond to supply shortages but also to ease pressure when oil prices jump sharply. He also argued Beijing should diversify oil supply more aggressively.

From the early days of the Iran conflict, Beijing ordered the suspension of exports of diesel, aviation fuel and some fertilizer products to protect domestic supply. Analysts and diplomats warned that if the conflict persists, China could continue restricting exports of items such as plastics, fertilizers and industrial inputs like sulfuric acid, potentially pressuring countries dependent on Chinese goods.

Shift toward renewables and broader energy mix

Chinese leaders have signalled that the Iran conflict is accelerating Beijing’s long-standing energy-security strategy, including reducing dependence on fossil fuels by increasing electricity use in transport and production.

According to a CCTV program posted earlier this week, President Xi Jinping called for accelerating development of renewable-energy projects, alongside promoting nuclear energy and coal to bolster energy security, though he did not explicitly reference the Iran conflict.

“A greener, more diverse energy system with better resilience will provide a solid foundation for China’s energy security and economic development,” Xi said.