Persistent tensions in the Middle East are impacting global energy security. Combined with price increases triggered by chip shortages, the global economy is facing dual supply chain and energy shocks similar to those seen in 2022. Risks within industrial chains continue to develop, and the resulting economic ripple effects could intensify, potentially dragging down global economic growth.
Currently, the world is experiencing two simultaneous supply-side shocks. Since the end of last year, the wave of price increases for memory chips has not only continued but has also spread to end markets. Samsung, SK Hynix, and Micron collectively dominate over 90% of global DRAM production capacity. Starting last year, with the surge in AI computing demand, demand for high-end memory has risen rapidly. These three companies have shifted over 80% of their advanced production capacity to high-end products, intentionally scaling back mature process capacity. This supply contraction, combined with panic stockpiling downstream, has led to tight supplies of consumer-grade memory chips, causing prices to multiply. This, in turn, has increased manufacturing costs in sectors such as consumer electronics, AI servers, and smart vehicles.
The shock is not confined to memory chips. The deterioration of the Middle East situation has caused the shutdown of helium production facilities in Qatar. Helium is an essential cooling and temperature-control material in the chip manufacturing process. Qatar supplies approximately one-third of the world's helium, and a disruption in its supply would severely impact the global semiconductor supply chain, potentially leading to reduced capacity and higher prices. Simultaneously, the global passive components industry has also announced plans to follow with price increases, suggesting the electronics industry may be entering a new cycle of rising prices. Currently, some domestic Chinese smartphone brands have already begun raising prices collectively.
On the energy front, the ongoing deterioration of the Middle East situation has effectively paralyzed shipping through the Strait of Hormuz, directly affecting about 20% to 25% of global seaborne crude oil shipments and 20% of liquefied natural gas (LNG) trade. Short-term supply reductions, coupled with geopolitical uncertainty, are pushing up international oil and gas prices. As the "lifeblood of industry," a significant rise in oil and gas prices will increase costs across entire industrial chains, including energy, chemicals, fertilizers, logistics, and textiles, potentially triggering more stubborn inflationary pressures. In 2022 and subsequent years, Europe and the United States suffered from high inflation due to soaring oil and gas prices, forcing them to maintain high interest rates.
In contrast, China is less likely to face a direct impact from this oil crisis. China's electricity supply primarily relies on coal and new energy sources, with oil and natural gas accounting for a relatively small share of the power supply structure. Although China's dependence on foreign oil and gas has long been high, domestic production of both oil and gas reached record highs in 2025. More importantly, oil transported via the Strait of Hormuz accounts for only about 6.6% of China's total energy consumption, with natural gas at a mere 0.6%, which somewhat reduces China's reliance on Middle Eastern energy routes.
However, while energy supply security is not fundamentally threatened, rising international oil and gas prices will still have an imported inflationary effect on China. As one of the world's largest consumers of oil and gas, price increases will raise overall operational costs for the economy, with the manufacturing sector bearing the initial brunt. A sharp rise in crude oil prices could accelerate the return of China's Producer Price Index (PPI) to positive territory, with effects gradually passing through to the Consumer Price Index (CPI), creating potential inflationary pressure.
This round of global oil price increases also has potential benefits for China. As the world's primary supplier of green energy equipment and new energy vehicles, energy price volatility may prompt more countries to accelerate their energy transition, increasing policy support for green energy investment and new energy vehicles. Currently, sales of new energy vehicles already account for about half of all new car sales in China. If global market potential accelerates, it could further solidify the leading advantage of China's related industries. Furthermore, compared to other manufacturing nations, China's energy system offers greater price stability. This resilience could drive a shift of some international manufacturing orders to China.
Nevertheless, downside risks persist. Current downstream demand in sectors like electronics and automobiles is generally weak. With cost pressures mounting from rising chip, oil, and gas prices, imported inflation could erode corporate profits and somewhat restrain consumption growth.
From an international market perspective, rising oil prices produce a significant "spillover effect," often causing resonance across commodities, stock markets, and foreign exchange markets. Capital markets in the United States, Japan, and elsewhere are particularly sensitive to this; oil price fluctuations often directly influence interest rate expectations, creating substantial disturbances in financial markets. In contrast, given China's large economic size and its currently moderate PPI and CPI, aside from cost pressures on specific industries and companies, this round of imported shocks is unlikely to have a substantive impact on domestic monetary policy or capital markets as a whole.
Comments