CITIC Securities Strategy Weekly Thoughts: Middle East Situation Has Far-Reaching Impact, China Faces Strategic Opportunities

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Source: CITIC Securities

Core Views

The US-Iran conflict has entered a stalemate phase, causing sharp fluctuations in crude oil prices. China’s diversified oil imports, energy structure transformation, and strategic petroleum reserves will also play a buffering role. However, under global risk appetite disturbances and domestic market liquidity constraints, A-shares may remain volatile in the short term. If the US-Iran conflict becomes prolonged, it could lead to three main impacts: 1) rising oil price center, increasing global inflation, and disrupting Fed rate cuts; 2) acceleration of the decoupling from the US dollar oil system, with China potentially becoming a global safe haven for capital, benefiting RMB assets; 3) creating strategic opportunities for China, leveraging a “coal + new energy” dual-energy foundation to ensure energy security and possibly lead global energy transition. Key industry focus: coal, coal chemicals, power equipment, utilities, oil and petrochemicals, AI industry chain, etc. Thematic focus: lithium batteries, nuclear power, energy storage, wind power, etc.

Crude Oil Prices Experience Volatility, But No Need for Excessive Panic

This week, the US-Iran conflict entered a stalemate, causing significant crude oil price swings, approaching $120 per barrel at one point, then retreating. However, Brent crude oil closed above $100 per barrel. Although the Middle East is a major source of China’s oil imports, China’s energy imports have become significantly diversified. By 2025, China’s dependence on Middle Eastern oil will be around 40%, notably lower than Japan and South Korea. Additionally, China’s energy transition and strategic petroleum reserves will provide buffers. Nonetheless, due to global risk appetite disturbances and domestic liquidity constraints, A-shares may remain volatile in the short term.

If the US-Iran conflict prolongs, it could create strategic opportunities for China

Firstly, rising oil prices will boost global inflation, disrupt the Fed’s rate cut pace, and lead to adjustments in global rate cut expectations.

Secondly, the decoupling from the US dollar oil system will accelerate, with a weakening dollar and deepening de-dollarization trend, potentially leading Middle Eastern capital to reallocate from US stocks. For China, increasing trade and investment ties with the Middle East and Asia will bring another window for RMB internationalization. As the most stable region in global energy and security, RMB assets are expected to attract global capital, including Middle Eastern funds.

Finally, this situation may generate strategic opportunities for China, relying on a “coal + new energy” dual-energy base to ensure energy security and possibly lead global energy transition. The value of coal in energy security is highlighted, with cost advantages in coal chemicals. The development of new power systems and smart grids will support electrification transformation, and Europe’s energy policy adjustments could further open markets.

Risks and Opportunities Coexist: On one hand, the revaluation of physical assets continues, with energy security-related sectors like coal, coal chemicals, power grids, utilities, and oil & petrochemicals remaining attractive. On the other hand, sectors benefiting from electrification—such as wind, solar, vehicle, and energy storage—have clear growth potential, supported by AI supply chains and electricity shortage chains.

Risk Warning: Policy implementation may fall short of expectations; US-China strategic game risks intensify; US stock market volatility exceeds expectations.