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Opinion
As oil-shocked world turns to renewables, China will reap the rewards
The biggest losers will be the Middle East and the US, as oil becomes less important and doubts grow about US might
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Dr Andy Xie is a Shanghai-based independent economist specialising in China and Asia, and writes, speaks and consults on global economics and financial markets.
The Iran war’s oil shock has dramatically increased the security risk for oil-dependent countries, incentivising a turn towards renewable energy. This impact will outlast the war and oil price spikes because the world knows this war will recur. China will be the biggest beneficiary and its exports are likely to do very well this year, offsetting losses from buying higher-priced oil.
A fifth of the global supply of oil and liquefied natural gas plus a third of seaborne fertilisers traditionally go through the Strait of Hormuz. Iran has closed this to all but a few vessels from friendly countries. As oil inventories drop, the price will rise further. When the oil price is high enough, stock markets will tumble, triggering a global recession.
The war is likely to end with the US stock market down 15 per cent or more. The US economy depends on its stock market. The huge investments in artificial intelligence that keep the economy afloat can only continue in a frothy market. When the market crashes, AI investment will collapse. The US government cannot continue the war with a collapsing stock market and recession looming. Surging oil prices will end the war via the stock market.
A ceasefire is the likely first step, with the US then working out a deal to Iran’s satisfaction. The Strait of Hormuz could be reopened in two months. But even then, oil supply will be hampered by damage to the region’s infrastructure.
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