Orient Securities: If high oil prices persist and lead to a global recession, China and the United States may benefit more than other regions.

On April 6, an Eastern Securities research report noted that, in terms of the similarities and differences between the U.S.-Iran situation and the Suez Canal crisis, from the similarities, the current U.S.-Iran conflict will most likely end in an outcome similar to that of the Suez Canal crisis: the empire cannot control the energy choke point, and thereby becomes a catalyst for accelerating changes in political and economic trends; while from the differences, at the time the UK faced two even more unfavorable situations:

First, after World War II, the world already had two parallel oil settlement systems: “petrodollars” and “petrol pounds.” Either side had the ability to replace the other. The UK relied on the “Imperial Preference System” established in the 1930s and its subsequent evolution into the “Sterling Area,” mainly importing oil from the Middle East with pounds, whereas the U.S. mainly imported oil from Latin America with dollars, and the other industrialized countries had a mix of both.

Second, and more importantly, the UK was a major oil importer. With the Suez Canal blockade, the most fatal real issue for the UK was that it could not obtain “petrol pounds” from the Middle East, and could only buy the more expensive “petrodollars” by consuming its foreign exchange reserves. Therefore, after the blockade, the pound was immediately massively sold off by international institutions, leading to a sharp depreciation of the pound.

Compared with the two points above, the United States’ current situation is clearly much better—and this is also the main reason why, after the conflict began, the dollar was completely different from the British pound back then. On the one hand, although the petrodollar system has cracks, the share of dollar settlement in global oil trade remains high, with no strong competing counterpart; on the other hand, as an oil net exporter, the U.S. itself imports very little oil from the Middle East, and rising oil prices further increase the amount of dollars required to purchase oil.

Based on the above factors, we believe that in the long run, the U.S.-Iran conflict is a landmark event marking the decline of dollar hegemony, and the renminbi is expected to gain a higher share in Middle East oil settlement; but expectations for the pace of “de-dollarization” should also not be too high. In the short term, both a relatively higher oil-price policy center and the global easing monetary policy expectations may continue to sustain the dollar’s strength.

If, subsequently, sustained high oil prices lead to global recession trade, then the market may price more from the perspective of energy resilience. As typical representatives of new and old energy resilience, China and the U.S. may benefit more than other non-U.S. markets. The volatility of global risk assets in March was largely due to risk appetite and liquidity shocks caused by the conflict; once the conflict is partially eased, the market will reassess the impact of high oil prices from the fundamentals again. As China, which has been the most successful in the energy transition, and the U.S., which has the strongest resilience in traditional energy, risk assets may benefit as a result as well.