The disruption caused by the US-Iran conflict has exceeded market expectations, with no clear resolution in sight, suggesting that high oil prices may persist for an extended period. China's exports are expected to maintain strong performance; the conflict presents both demand-side challenges and supply-side structural benefits for exports. Rising traditional energy costs could boost demand for new energy products, with exports of the "new three" items likely becoming a significant growth driver. However, in the short term, temporary disruptions in the Strait of Hormuz may lead to production cuts or shutdowns for some petrochemical firms, and exports to Persian Gulf countries could see a temporary decline. Data related to domestic production and exports may show a noticeable slowdown starting in March. If geopolitical conditions worsen, policy responses could emerge as early as the April Politburo meeting. While the Producer Price Index (PPI) is anticipated to turn positive in March, the People's Bank of China is unlikely to tighten monetary policy and will continue supporting domestic demand expansion. On the macroeconomic front, both internal and external demand drove stronger-than-expected production in January-February 2026. This week, markets are focused on China's January-February economic data and the Federal Reserve's policy meeting, while developments in Iran warrant attention next week.

The intensity of the US-Iran conflict has surpassed initial market forecasts, and with no definitive solution yet available, elevated oil prices could last longer than anticipated. Initially, financial markets viewed the conflict as a short-term, localized friction lasting one to two weeks, based on historical precedents. However, by March 21, 2026, the conflict had entered its third week, with significant gaps remaining between the parties regarding ceasefire terms and no clear path toward de-escalation. Due to the blockade of the Strait of Hormuz, some oil facilities in the Middle East have reduced or halted production. The International Energy Agency (IEA) projects a global oil supply decline of 8 million barrels per day in March, indicating that high oil prices may persist. Historically, five out of the past nine U.S. recessions followed substantial oil price surges, and markets are currently pricing in the possibility of an economic downturn or stagflation.

Optimism remains for China's export sector, as high oil prices bring both demand-side headwinds and supply-side structural advantages. If oil prices remain elevated long-term, full-year export growth could reach 7.8%. On the demand side, IMF estimates suggest that a 10% rise in oil prices reduces global output by 0.1–0.2%. Based on current Brent crude futures pricing and WTO projections for global economic and trade growth, high oil prices could negatively impact global trade by 0.8–1.5 percentage points this year. However, oil price impacts can be nonlinear, and excessively high prices risk triggering a global recession. On the supply side, rising traditional energy costs may stimulate demand for new energy products, with China's "new three" exports potentially contributing an additional 1.5 percentage points to export growth. Moreover, since oil and natural gas constitute a smaller share of China's energy mix compared to coal and renewables, price increases in oil and gas have a more pronounced effect on overseas energy costs. This could enhance the global competitiveness of certain Chinese energy-intensive products, such as electrolytic aluminum, industrial silicon, steel, and coal chemical products. These supply-side benefits may offset demand-side weaknesses, supporting sustained robust export performance.

In the near term, however, domestic production and export-related data may slow noticeably in March, with policy responses potentially emerging as early as the April Politburo meeting. Monetary policy is expected to remain appropriately accommodative. Disruptions in the Strait of Hormuz could temporarily affect exports to Persian Gulf countries, which account for approximately 2.3% of total exports, leading to a dip in March–April data that may recover once the strait reopens. Transportation halts may also impede raw material imports for some domestic petrochemical firms, forcing production cuts or shutdowns and dampening industrial value-added growth. Recent declines in operating rates for products like ethylene and ethylene glycol already reflect this trend. While market expectations for countercyclical policies are currently low, significant global economic impacts from high oil prices could prompt stronger stabilization measures by April. Recent views suggest the Federal Reserve might tighten policy in response to high oil prices, driven not solely by price increases but also by inflation expectation concerns. China's inflation environment differs, and monetary policy is unlikely to tighten due to supply-side shocks, as seen in 2021 when accommodative measures were implemented despite high PPI from supply disruptions. Should economic growth slow due to high oil prices or other factors, the central bank is expected to cut interest rates decisively to support the economy.

Macroeconomic performance in January–February 2026 was driven by a synchronized recovery in domestic and external demand, leading to stronger-than-expected production. Economic data for the period showed improvements on both supply and demand fronts, with overall performance exceeding market forecasts. On the production side, industrial value-added growth surpassed expectations, supported by rebounds in investment and exports, while the services production index edged up, buoyed by extended Spring Festival holidays. On the demand side, early effects of domestic demand expansion policies were evident, as fixed-asset investment growth stabilized, with infrastructure investment posting notable gains. Retail sales growth also exceeded expectations and previous readings, aided by factors such as the early rollout of trade-in programs, seasonal stockpiling variations, and extended holiday boosts to catering consumption. Looking ahead, exports are projected to maintain strong growth, consumer spending should see moderate recovery with policy support like trade-in programs, and accelerated special bond issuance along with new policy financial tools are expected to stabilize investment growth. This week, markets are monitoring China's January–February economic data and the Federal Reserve meeting, while Iranian developments should be watched closely next week.

Key risks include slower-than-expected policy implementation, unexpected shifts in economic performance, ineffective policy measures, and unforeseen geopolitical tensions.