Commerzbank analyst Dr Henry Hao says China is better placed than many Asian economies to handle energy disruption linked to Middle East tensions and risks around the Strait of Hormuz. The note points to diversified crude imports, large strategic reserves, and lower fossil fuel use per unit of GDP.
Across Asia, countries are using strategic petroleum reserves with mixed results. Japan, South Korea, and Taiwan have strong state stockpiles, while India, Thailand, and the Philippines have limited inventories and are more exposed to extended supply disruption.
China is described as using reserves and policy measures to soften short-term price and supply shocks. Ongoing geopolitical volatility is said to keep pressure on this near-term cushioning.
China has reduced reliance on Middle East crude through diversification, and this share is described as the lowest among major Asian economies. The report says the Middle East portion of China’s crude sourcing has been declining since 2022.
The report adds that China’s broader energy mix is shifting, with more renewables and less fossil fuel consumption per unit of GDP. It also notes that impacts can vary by sector, with transport and chemicals more likely to face strain if volatility persists.
Given the tensions around the Strait of Hormuz, we should consider trades that favor Chinese assets over those of its more vulnerable Asian neighbors. One strategy is to structure a pairs trade, going long the Chinese Yuan against a basket shorting the Japanese Yen and South Korean Won. This position is supported by the latest March 2026 data showing Japan still imports 88% of its crude via the strait, while China’s Q1 2026 figures show its Middle East dependency has fallen to just 42%.
An outright long position on Brent crude oil futures or call options is also a direct hedge against a supply shock emanating from the strait. We saw how quickly prices reacted to regional flare-ups back in 2024 and 2025, and any disruption to the nearly 21 million barrels passing through Hormuz daily would have an immediate global impact. This remains the most straightforward way to position for escalating conflict in the region.
China’s structural resilience provides a buffer that its neighbors lack, making its markets a relative safe haven. Last week, China’s National Food and Strategic Reserves Administration confirmed reserves now exceed 90 days of net imports, providing significant short-term insulation from price shocks. This, combined with a reported 25% year-on-year increase in renewable energy generation through February 2026, strengthens the case for China’s relative economic stability.
However, we must also recognize the uneven impact within China’s economy. The analysis points to weakness in the transport and chemical sectors, which are highly sensitive to energy input costs. We can express this view by shorting ETFs focused on Chinese industrial chemicals or by buying put options on major airline and shipping companies listed in Shanghai or Hong Kong.
Finally, the certainty of increased market turbulence means we should be buying volatility. Implied volatility on options for the FTSE China A50 and Hang Seng indices is still relatively low compared to the potential risk. Establishing long vega positions through straddles or strangles would allow us to profit from the price swings that would inevitably follow any disruption, regardless of the ultimate direction.
