CICC: Who Benefits More from High Oil Prices?

Topic: The market is waiting to buy the dip—watch the three deployment lines of energy, growth, and policy

Source: CICC Insight

Since the outbreak of the conflict on February 28, the situation in Iran has already been over a month, and the blockade of the Strait of Hormuz has also exceeded one month. After the rapid release of initial emotions, the market in the past one or two weeks appears to have entered a relatively “stable period,” but this apparent calm can be easily broken. In addition, as time continues to pass, if the market realizes that the impact will gradually shift from the earlier “paper worries” at the sentiment and trading level to the “actual shocks” to production and daily life, then the economic impact and earnings drag will also need to be repriced.

For example, since the outbreak of the conflict, profit forecasts for both the US stock market and the A-share market have actually been revised upward by 4% and 1.5%, respectively. The downgrades for Hong Kong equities’ earnings are also largely related to their own industry-specific structural headwinds, rather than being driven by geopolitical risks and high oil prices (Chart 5). In other words, pricing of earnings for the impact of oil price shocks has not yet been reflected, which is also one reason why we have pointed out that the equity market’s pricing of bearish scenarios is generally still not sufficient (“Has the market fully priced in Iran risk?”).

Therefore, going forward, there are two key points to watch in the direction of Iran’s situation: first, April—whether the situation escalates and whether expectations reach their own “turning point” (Chart 1)—and also the true starting point for oil tankers to be cut off for good (Chart 2); second, Southeast Asia—which, as a “weak link” with low energy reserves and a single import source, and over the past one or two years has been a key node in China’s exports and the global trade friction supply-chain restructuring. If its production activities are affected and even stall, it will create a bigger shock to the economy and market sentiment (Chart 3) (“Has the market fallen to where it should?”).

However, the impact of high oil prices is obviously not “indiscriminate.” The differences mainly show up in two dimensions: 1）energy sources and substitution options are diversified, which can reduce the shock from high oil prices as much as possible—such as China’s diversified channels for energy sourcing and US domestic shale oil extraction (Chart 4). With energy substitution solutions or lower exposure to oil and gas costs (and even as a direct beneficiary of exporting energy), China has a natural resilience to high oil prices; 2）the ability to absorb costs and production resilience. Even if affected, thanks to the energy guarantee system, economies of scale, and supply-chain resilience, the degree of damage is lower than competitors’—meaning it can actually benefit when other capacity is forced to clear, by expanding market share through other capacity. This applies to industries such as steel and aluminum.

If high oil prices become a reality that we will inevitably have to accept for the next stretch of time, the answer we look for in this article is: from a macro perspective, which industries have comparative advantages in China and can benefit.

Chart 1: According to gambling data, the probability that the US-Iran conflict ends before May 15 is 28%

Source: Polymarket, Research Department of CICC

Chart 2: Based on the common speed of VLCCs, oil tankers had already arrived at their destination through the Strait of Hormuz before the Iran situation erupted at the end of February

Source: hiFleet, Research Department of CICC

Chart 3: Multiple Southeast Asian countries have already introduced policies to cope with supply disruptions

Source: Reuters, Bloomberg, Research Department of CICC

Chart 4: China and the US, leveraging diversified crude oil import channels and domestic shale oil extraction respectively, have natural resilience to high oil prices

Source: EIA, Wind, Research Department of CICC

Chart 5: Since the outbreak of the US-Iran conflict, the dynamic earnings expectations for S&P 500 and CSI 300 have been revised upward by 4% and 1.5%, respectively

Note: Data as of April 2, 2026. Source: FactSet, Research Department of CICC

Where has high oil price transmission reached? Financial markets are the first to be hit, and energy prices have also moved quickly; second-round transmission to supply chains and inflation expectations is not yet obvious

Oil prices are rising first because supply is disrupted. The Strait of Hormuz has been in a substantive “shutdown” since February 28 [1]. In March, tanker volumes on this route fell to zero (Chart 8), directly leading to about 20% daily global crude oil supply being interrupted. The supply disruption then leads to a decline in production. According to Reuters data [2], OPEC+ oil-producing countries cut March production by 7.95 million barrels to 21.57 million barrels/day, down 27% month-on-month, falling to the lowest level since June 2020. Kuwait, Iraq, Saudi Arabia, and the UAE are the main sources of production cuts (Chart 9).

Chart 8: Bloomberg’s statistics show that in the entire month of March there were basically no tankers passing through the Strait of Hormuz

Source: Bloomberg, Research Department of CICC

Chart 9: OPEC+ oil-producing countries reduced March production by 7.95 million barrels to 21.57 million barrels/day

Source: Bloomberg, Reuters, CICC Research Department

How far has high oil price transmission progressed? First, the shock to financial markets is the first to be hit. High oil prices have led the futures market to no longer price in any within-year rate cut expectations (Chart 6). In “Has the market fully priced Iran risk?” we calculated that this implies the assumption that the conflict continues into the second half of the year, keeping the oil price center above $100 (Chart 7).

Chart 6: CME interest rate futures imply that the timing of rate cuts has been pushed back to September 2027

Note: Data as of April 4, 2026

Source: CME, Research Department of CICC

Chart 7: The implied assumption of no rate cuts within the year is that the conflict continues into the second half of the year, keeping the oil price center above $100

Source: Haver, Research Department of CICC

Second, energy prices have also moved quickly. Brent spot prices reached a 2008 high of $141 per barrel on April 2, and the spread between Brent continuous contract prices widened to $32, further highlighting tightness in the physical crude oil market supply caused by the Strait of Hormuz blockade (Chart 10). However, there is clear divergence across different products and regions:

► By product, jet fuel has seen a larger increase than diesel and gasoline. Based on crack spreads (the difference between the cost of refined products and crude oil), the average jet fuel crack spread in March rose to $70–80 per barrel, significantly higher than diesel at $56 per barrel and gasoline at $30 per barrel (Chart 12). This reflects that under rigid constraints in refinery output structure, jet fuel supply is relatively tight and substitution is weaker. For chemical products, products with higher exposure to the Middle East saw significantly higher price increases. Short-term supply shocks have driven sharp gains in sulfur (49%), ethylene glycol (41%), methanol (38%), polyethylene (37%), and others. For urea and phosphate fertilizers, while overseas prices have risen, since China is a net exporter of urea and phosphate fertilizers, domestic prices have not risen much (urea: 3%, phosphate fertilizers: 2%). As for potash fertilizers, geographically they mainly rely on transportation along the Red Sea and the Mediterranean coastline, resulting in limited supply disruption and relatively stable domestic prices (0%) (Chart 13). It is worth noting that widening the oil-coal spread will make substitution routes using coal as a feedstock clearly advantageous, and profitability for domestic coal-to-methanol, coal-to-ethylene glycol, and coal-based polyethylene may improve (“An analysis of how the Strait of Hormuz situation affects China’s oil-and-gas chemical industry”).

► By region, the Asia-Pacific region has the highest oil price increase. As of April 2, using Singapore as the benchmark, the price increases for diesel and jet fuel in the Asia-Pacific region exceed 120%, while gasoline lags (79%), far surpassing the increases for the same product categories in Europe and the US (Chart 11). Europe has the highest natural gas price increase. Since the conflict broke out, the Dutch TTF natural gas price has risen by as much as 57%, while in the US—where energy self-sufficiency is high—NYMEX natural gas prices actually fell slightly by 1.8%.

Chart 10: Brent spot price hit the highest level since 2008 at $141 per barrel on April 2

Source: Bloomberg, Research Department of CICC

Chart 11: Price increases for refined oil products in the Asia-Pacific region, using Singapore as the benchmark, significantly exceed those in Europe and the US

Note: Data as of April 2, 2026. Source: Wind, Research Department of CICC

Chart 12: The average jet fuel crack spread since March rose to $70–80 per barrel, significantly higher than diesel and gasoline

Note: Data as of April 2, 2026. Source: Bloomberg, Research Department of CICC

Chart 13: Products with relatively higher exposure to the Middle East, such as sulfur, ethylene glycol, methanol, polyethylene, and others, saw significant increases

Note: Data as of April 2, 2026

Source: Wind, Research Department of CICC

Once again, prices also show second-round transmission to other industrial supply chains and inflation expectations. This is more evident in products with high dependence on Middle East imports and weak substitutability, such as refined oil products, sulfur, and methanol. In March, within the global manufacturing PMI by component, purchase prices and output prices rose in tandem to a new high since 2022—especially in the ASEAN region, which implies that price pressure will further transmit to PPI and CPI (Chart 16). Whether it will continue to transmit further along the supply chain remains worth watching. In terms of inflation expectations, short-term expectations have clearly risen, but long-term expectations remain relatively stable. Two-year US breakeven inflation expectations rose by 58bp, significantly higher than the 22bp for five-year US breakeven inflation and the 12bp for ten-year. This means the market has not yet priced the inflation pressure from the Iran situation as a move upward in the non-long-term structural anchor (Chart 14).

Chart 14: Two-year US breakeven inflation expectations rose 58bp, significantly higher than 22bp for five-year US breakeven inflation and 12bp for ten-year

Source: Bloomberg, Research Department of CICC

Chart 15: Since the outbreak of the US-Iran conflict, goods with high dependence on Middle East imports and weak substitutability have led price gains

Note: Data as of April 2, 2026

Source: Wind, Research Department of CICC

Chart 16: In March, global manufacturing PMI purchase prices and output prices rose in tandem

Source: Haver, Research Department of CICC

Where are China’s relative advantages? Diverse import channels, ample inventories, a dispersed energy mix, and a price-stabilization mechanism

Nearly 90% of crude oil and natural gas volumes from the Strait of Hormuz are destined for Asia [3], which means the suspension of shipping theoretical since March has, in principle, a much larger shock to crude oil supply in Asia than in Europe and the US (Chart 18). However, within the Asia-Pacific region, the supply shock also has significant “asymmetry”:

► The Philippines, Vietnam, and Malaysia face greater pressure, with diesel increases exceeding 80%. Over the past month, the Philippines’ gasoline and diesel prices rose by 76% and 96%, respectively. Vietnam (gasoline +19%, diesel +84%) and Malaysia (gasoline +49%, diesel +82%) followed closely. Against a backdrop where crude oil inventories are already relatively low, Vietnam prioritized policies such as exempting fuel taxes and promoting working from home to curb gasoline prices, but diesel costs in the production end rebounded sharply (Chart 17).

► Japan, South Korea, India, and Indonesia have relatively stable prices, with increases in gasoline and diesel not exceeding 20%. Japan and South Korea curb end-user prices through releasing crude reserves, limiting prices, and subsidizing fuel prices. As a result, increases in gasoline and diesel prices are no more than 20%. Gasoline and diesel prices in India and Indonesia are basically unchanged. Indonesia is advancing biodiesel to stabilize prices, while India stabilizes prices by cutting consumption taxes and using price caps; however, the “cost” is that state-owned refiners (OMCs) face significant cost inversion [4].

► In China, the increase in gasoline and diesel prices over the past month has been around 20%, placing it in the “middle zone” among major Asian countries. According to China’s “Measures for the Management of Petroleum Product Prices” [5], adjustments only stop when international oil prices exceed a $130 “ceiling price.” In the $80–130 range, the country moderates domestic price increases by deducting refinery processing margin rates. This transmission suppresses extreme volatility while also enabling private refiners to maintain positive operating incentives to secure supply safety.

Chart 17: The Philippines, Vietnam, and Malaysia face greater price pressure; Japan, South Korea, India, and Indonesia are relatively stable

Note: Data as of April 2, 2026

Source: Global Petrol Price, Research Department of CICC

Chart 18: Before the outbreak of the US-Iran conflict, nearly 90% of crude oil volumes through the Strait of Hormuz were sent to Asia

Source: IEA, Research Department of CICC

Looking ahead, if high oil prices persist for a long time, China’s relative advantages may further expand thanks to diversified import channels, relatively ample inventories, and a green energy-oriented energy structure.

► Diverse import channels: In recent years, China’s share of crude oil imports from the Middle East has declined slightly (Chart 19). From 51% in 2022 (42% contributed by Middle East OPEC member countries, and 9% by other Middle East countries), it fell to 42% in 2025 (the share of Middle East OPEC member countries dropped to 35%). The share of Russia and Eurasian countries is increasing—from 26% in 2022 (Russia at 16%, and Eurasia at 11%) rising to 33% in 2025 (Russia at 17%, and Eurasia at 16%).

► Relatively ample reserves: According to Kpler statistics [6], as of early January 2026, China’s onshore oil reserves have exceeded 1.2 billion barrels, the highest historical level (Chart 21). Japan and South Korea’s crude oil reserve days are sufficient for more than 200 days, but the crude oil reserves in the Philippines and Vietnam are only enough for 45 days [7] and 10 days [8], respectively.

► Dispersed energy mix: First, based on 2023 data of China’s energy supply structure, coal still dominates at 61%, while the combined share of oil and natural gas is only 26%, with oil-and-gas exposure far lower than Germany (62%), Japan (57%), and South Korea (56%). The share of renewables continues to rise, increasing from 2% in 2000 to 7%. Although this is still lower than the Philippines (16%) and Vietnam (10%), it is far higher than Japan and Korea (Chart 22). Second, although China is a net crude oil importer, China’s oil import dependence (72%) is smaller than that of countries such as Japan, South Korea, and India. Moreover, the share of crude oil transported via the Strait of Hormuz is as high as 71% and 54% of their total crude oil supply for Japan and South Korea, respectively (Chart 20). Third, the power generation structure is also dominated by thermal power (58%), with oil and gas accounting for only 4% of electricity generation (oil 0.9%, natural gas 3.2%), which is significantly lower than Mexico (72%, oil 10% and natural gas 62%), Japan (36.5%), and South Korea (30%) (Chart 23).

Widespread adoption of new energy vehicles eases pressure on oil use: China’s retail sales penetration of new energy vehicles reached 54% in 2025, meaning reliance on gasoline in incremental vehicle demand continues to decline. This drives gasoline’s share in refined oil consumption down from a peak of 42% in 2021 to 39% (Chart 24).

Chart 19: In recent years, the share of crude oil imported from the Middle East has declined slightly, while the share from Russia and Eurasian countries has risen

Source: Wind, Research Department of CICC

Chart 20: The shares of crude oil transported via the Strait of Hormuz are 71% and 54% of total crude supply for Japan and South Korea, respectively

Source: IEA, Research Department of CICC

Chart 21: China’s onshore oil reserves have exceeded 1.2 billion barrels, the highest historical level

Source: Kpler, Research Department of CICC

Chart 22: As of 2023, in China’s energy supply structure, coal still accounts for 61% as the dominant source; the combined share of oil and natural gas is only 26%, and oil-and-gas exposure is far lower than in Germany, Japan, and South Korea

Source: IEA, Research Department of CICC

Chart 23: The power generation structure is also dominated by thermal power (58%), with oil and gas accounting for only 4% of electricity generation

Source: IEA, Research Department of CICC

Chart 24: New energy vehicle retail penetration rose to 54%, driving gasoline’s share in refined oil consumption from 42% down to 39%

Source: Wind, Research Department of CICC

Finding China’s relative advantage under high oil prices: Cross-border comparison of industry advantages

Because exports were the main driver of China’s growth over the past two years (Chart 32), and low costs are one of China’s main competitive advantages (Chart 33), China’s industrial enterprises generally have lower profit margins under capacity and de-stocking pressure (Chart 34、Chart 35). Rising oil and gas prices inevitably bring production cost pressure, especially for industries with low profit margins that struggle to pass costs through.

Chart 32: Exports over the past two years have been the main driver of China’s growth

Source: Wind, Research Department of CICC

Chart 33: Low cost is one of China’s major competitive advantages in exporting enterprises

Source: CPB, Research Department of CICC

Chart 34: Chinese industry (especially manufacturing) faces pressure from capacity and de-stocking

Source: Wind, Research Department of CICC

Chart 35: Under capacity pressure, profit margins for China’s midstream and downstream manufacturing face headwinds

Source: Wind, Research Department of CICC

But the energy price shock is not entirely unfavorable for China. Compared with other trade-surplus economies, China’s energy system has certain advantages, which means it will be damaged less when facing the Iran situation. As a result, China may even gain market share when competitors’ capacity temporarily exits. In this process, industries with stronger export capabilities will be better positioned to “realize” their cross-border comparative advantages in global trade, gaining opportunities for higher market share and improved export profits. We can examine this from two dimensions: cost share and relative advantage:

► Energy cost share: This includes costs for oil and natural gas, refined petroleum products, and power and gas. Based on the OECD cross-country input-output table (ICIO), we calculate and sum the direct cost shares of oil and gas, refined petroleum products [9], and power and gas across industries. It contains information at two levels: 1）absolute costs. If an industry’s oil-and-gas-related cost share is high, that industry’s cost side will be more heavily affected by the Iran situation. 2）but from a relative cost perspective, given China’s energy system advantage, industries with higher absolute cost shares may actually show more obvious relative advantages. Therefore, in general, if an industry’s energy cost share is consistently high, China tends to have a relative advantage in cross-border comparisons.

► Export competitive advantage: If China has already secured a large competitive advantage in a particular industry, it is better able to capture higher shares. Export competitive advantage can be characterized in two dimensions: 1）China’s export share by industry, i.e., China’s share in all export goods of that industry. 2）China’s industry RCA (revealed comparative advantage), i.e., the industry’s share of China’s exports divided by that industry’s share of total global exports, used to reflect China’s relative advantage compared with other regions globally. The stronger the export capability, the more easily the industry’s cross-border comparative advantage in costs can be converted (“realized”) into actual export earnings (such as higher international market share).

Based on these two dimensions, we use 24 industries [10] from the OECD cross-country input-output table (ICIO) as the research objects to conduct cross-industry comparisons under an energy shock (Chart 25):

Chart 25: Based on industries’ energy cost shares and export capabilities, cross-industry comparison under an energy shock is possible

Note: Input-output table data are as of 2022; export data are as of 2024. Source: OECD, Trade Map, Research Department of CICC

► First category: High energy cost share and large export competitive advantage. Such industries face bigger cost shocks than other industries—for example, steel manufacturing is energy-intensive and therefore more sensitive to energy prices. But compared with competitors, it actually has a relative cost advantage. On the one hand, the aforementioned advantage in China’s energy supply is more evident in industries with high oil-and-gas exposure. On the other hand, China also has process advantages in certain product categories or segments, which can help bypass the negative effects of rising oil-and-gas prices. Typical industries include chemicals, steel, and building materials (such as fiberglass).

Taking steel as an example, the relative cost advantage shows up at two levels: 1）Steel has a large consumption of electricity and heat energy. From the input-output table, in “basic steel manufacturing,” the direct cost share of electricity and heat is 4.2% (vs. the all-industry average of 2.3%), meaning China’s energy advantage is reflected. 2）From the production route, crude steel production can be divided into the EAF route (electric power input is 50%, Chart 27) and the BF-BOF route (electric power input is only 7%, Chart 26). China’s share of the EAF route is only 10.2%. The average share of the EAF route among the other top ten crude steel producers is 49.7%, meaning China uses less electricity in steel production (Chart 28), further reinforcing its cost advantage and benefiting steel exports. By contrast, Europe (crude steel capacity share of 9.3% [11])—as early as February this year, the steel association already pointed out that “high electricity prices will weaken Europe’s ability to compete with China” [12]. The Iran situation further reinforces Europe’s unfavorable competitive position relative to China [13].

Chart 26: Producing steel using the BF-BOF route consumes less electricity

Source: worldsteel, Research Department of CICC

Chart 27: Producing steel using the EAF route consumes more electricity

Source: worldsteel, Research Department of CICC

Chart 28: China’s EAF route share is only 10.2%, and it naturally consumes less electricity than competitors

Source: worldsteel, Research Department of CICC

Aluminum is similar. In the 2025 global primary aluminum production structure, China, Europe, and the Middle East rank among the top three, with shares of 59.9%, 9.6%, and 8.3%, respectively (Chart 30). The electrolytic aluminum process is more sensitive to both electricity prices and stability. When natural gas prices rise, China has a larger cost advantage than regions that rely on natural gas power generation, such as Europe. On this basis, if capacity in the Middle East is forced to exit due to the conflict, it will further enhance China’s relative advantage. During the period when the conflict persists, the stability of electricity supply to Middle East aluminum plants is threatened. Two aluminum plants—United Arab Emirates Global Aluminium and Bahrain Aluminium—were directly targeted, and some Middle East capacity may temporarily exit (“Two major Middle East aluminum companies were hit, and aluminum supply has faced another shock”) (Chart 31).

Chart 30: Looking at the global primary aluminum production structure in 2025, China, Europe, and the Middle East are in the top three

Source: International Aluminium, Research Department of CICC

Chart 31: China’s aluminum industry may benefit from cheap and stable thermal power, or capture opportunities from rising aluminum prices

Source: Wind, Research Department of CICC

► Second category: Low energy cost share and large export competitive advantage. In these industries overall, the energy cost share is relatively small, so the impact from the Iran situation is controllable. Meanwhile, these industries themselves have strong export competitiveness, so they can still serve as stable advantage industries unless high oil prices cause global demand to fall sharply—possibly even pushing the economy into recession. Typical industries include electronics, electrical equipment, automobiles, and auto parts.

► Third category: High energy cost share and low export competitive advantage. These industries face significant pressure from higher energy costs, but their export competitive advantage is not as evident as the first category. Therefore, it is difficult for them to quickly realize their relative advantages through strong overseas demand. Typical industries include metal ore mining and other mining (such as stone, sand, and clay).

► Fourth category: Low energy cost share and low export competitive advantage. In these industries overall, the energy cost share is relatively small. At the same time, they are not industries with strong export competitive advantages, and they have stronger attributes of domestic demand. Typical industries include biotech and pharmaceuticals, food and beverage tobacco, and so on.

Portfolio implications? Strengthen electrical equipment, automobiles, and auto parts; chemicals, aluminum, steel, and building materials to expand market share

From the analysis above, we can look for industry-level “winners” and “losers” from two perspectives: “cost” and “competitive advantage.” To summarize: based on the four categories above, 1）if oil prices are relatively high but not high enough to trigger a global recession, then industries in the first category have the largest relative advantages; 2）if oil prices remain high and lead the world into recession, then the fourth category is the most defensive; 3）if oil prices fall quickly, industries in the second category remain the main competitive-advantage beneficiaries.

However, costs are only one angle. The final impact of an energy shock on earnings also depends on supply-demand conditions and whether cost pass-through is smooth. An extreme example is when an industry has a relative cost advantage and also has global competitiveness, but profit margins are very low; this could result in a “losing money but winning volume” situation, which also is not an optimal investment choice. Based on this consideration, we use net profit margin as a supplementary indicator to compare the industry’s expected net profit margin percentile versus its historical distribution (past eight quarters, Chart 29). The higher the percentile, the better the supply-demand relationship (more of a “seller’s market”); it is more likely to successfully pass through prices and thus not excessively damage profitability by “using volume to make up prices.” Taken together,

Chart 29: The higher the industry net profit margin percentile historically, the better the supply-demand relationship, and the more likely it is to successfully pass through prices to open up room for earnings

Note: Data as of April 3, 2026. Source: FactSet, Research Department of CICC

► Reinforce the advantage: Industries with low oil-and-gas-related cost share, strong export competitiveness, and high historical net profit margin percentile—for example, electrical equipment, automobiles, and auto parts. For these industries, the impact from oil price cost shocks is controllable. Some product categories may also benefit from energy substitution demand under the Iran situation, which can reinforce their competitive advantage (such as new energy vehicle makers and their auto parts).

► Expand market share: Industries with high oil-and-gas-related cost share, strong export competitiveness, and high historical net profit margin percentile—for example, steel, building materials (such as fiberglass), and some chemicals and aluminum, where supply may already have been damaged by the Middle East situation. These industries will face cost pressure, but if cost increases in other major producing regions happen even faster and cause supply gaps, we could benefit by expanding market share (“Has the market fallen to where it should?”).

► Defensive attributes: Industries with low oil-and-gas-related cost share, weak export competitiveness, and high historical net profit margin percentile—for example, biotech, food and beverage tobacco, and so on. These industries face relatively small external shocks and can serve as defensive options when external demand is severely damaged.

Source

Original source

This article is excerpted from: “Who benefits more under high oil prices?” released on April 6, 2026

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