Energy shock from Iran war shifts western orders back to China

Saturday 18 April 2026 - 07:50

By: Dakir Madiha

Energy shock from Iran war shifts western orders back to China

The Canton Fair opened in Guangzhou with record scale, bringing together more than 32,000 companies and over 210,000 registered foreign buyers. The event reflects strong global trade interest, yet it unfolds under the shadow of a prolonged conflict involving the United States, Israel, and Iran. The war has disrupted shipping routes through the Strait of Hormuz and driven energy costs higher across Asia, reshaping industrial supply chains.

Chinese exporters reported a sharp divide in demand. Buyers from the Middle East, once a fast growing market, reduced orders significantly as shipping costs rose between 50 and 70 percent. China’s exports grew only 2.5 percent year on year in March, down from an average 22 percent growth recorded in the first two months of 2026.

At the same time, rising energy costs across Southeast Asia have shifted some advantages toward China. In Vietnam, gasoline prices increased by 50 percent and diesel by 70 percent since February. National reserves dropped below 30 days of supply. The Asian Development Bank warned that higher energy costs would weigh on regional production and slow growth to 5.1 percent.

This pressure has led some Western buyers to redirect orders back to China. The country’s energy system remains relatively stable due to domestic coal supply, expanding renewable capacity, pipeline gas imports, and strategic reserves. Supply chain monitoring firm QIMA reported an 8 percent increase in inspection demand in China during the first quarter of 2026. Demand from emerging markets in Africa, Eastern Europe, and Latin America drove this rise, while demand from the United States declined by 7 percent.

Financial tensions have also increased. The US Treasury warned Chinese banks of potential secondary sanctions if Iranian funds pass through their accounts. Officials said Iran moved about 9 billion dollars in 2024 through international banking channels using front companies based in Hong Kong, Oman, and the United Arab Emirates. Washington expects the naval pressure around Hormuz to reduce China’s purchases from Iran.

China rejected these measures. Officials stated that unilateral sanctions without United Nations approval are illegal. Beijing called for an immediate end to military actions while supporting diplomatic mediation efforts rather than direct pressure on Tehran.

The Canton Fair highlights these competing forces. Chinese exports in new energy sectors such as lithium batteries and wind equipment rose more than 45 percent in the first quarter. Traditional manufacturers face tighter margins due to higher raw material and freight costs. Meanwhile, new Chinese regulations introduced on April 7 penalize foreign firms that cut ties with Chinese suppliers for political reasons, raising concerns among international business groups.

The long term impact of the energy shock remains uncertain. Statements from Washington suggest a possible agreement with Iran, while Iranian officials insist that shipping routes remain open despite continued US naval presence. The outcome will shape whether China’s current advantage in manufacturing holds or fades as global conditions stabilize.