GT Voice: Economic impact of escalating Middle East conflict multiplies
Published: Apr 14, 2024 10:01 PM
Illustration: Chen Xia/Global Times

Illustration: Chen Xia/Global Times

With the Middle East conflict escalating following Iran's attack on Israel early on Sunday, fears are mounting that another series of destructive shockwaves will reverberate through global markets.

The initial worry about the economic consequences of the deteriorating situation in the Middle East is likely to be focused on the energy markets, as the region heavily influences global oil and gas production. 

Oil production in the Middle East amounted to roughly 30.7 million barrels per day in 2022, accounting for 31.3 percent of the global total, according to data from intelligence platform

Yet, as a crucial factor in global energy, financial markets and trade, the Middle East tension - fueled by the escalating conflict - has extensive implications not only for the region, but also for the global economy. 

For instance, the escalating conflict is expected to increase global inflation, introducing fresh uncertainty and challenges to the US Federal Reserve's agenda for rate cuts. From oil to precious metals, and from currencies to stocks and even new energy, virtually no sector can be immune from the impact.

It can be said that in the era of globalization, the situation in the Middle East has transcended the borders of individual countries to become a global challenge. A Chinese Foreign Ministry spokesperson said on Sunday that China calls on the international community, especially influential countries, to play a constructive role in maintaining regional peace and stability.

The stability of the region is of great significance, not only to global economic stability and development, but also to the Chinese economy. For starters, the region is an important source of oil and gas for China, with its abundant resources playing a vital role in ensuring China's energy security. A continuation or escalation of the conflict in the Middle East could put more pressure on China's energy import costs, resulting in higher manufacturing costs and potentially affecting the competitiveness of its exports.

Furthermore, at a time when China's foreign trade environment is already under pressure from the US and Europe as well as global geopolitical tensions, the escalating conflict in the Middle East is poised to further complicate China's trade landscape. With the deepening economic ties between China and Middle East countries, the Middle East has emerged as a fast-growing trade market for China, while China has become the largest trading partner for Arab nations. China-Middle East trade nearly doubled from 2017 to 2022, rising from $262.5 billion to $507.2 billion, according to customs data. Against this backdrop, China may need to be prepared for potential shocks from the Middle East tension to its trade, which may affect demand for Chinese products as well as logistics difficulties.

Nevertheless, this is not the first time that China's foreign trade has encountered a challenge. As the top trading partner to more than 120 countries, China has the strength and ability to adapt to and overcome new problems. In the first quarter of this year, China's foreign trade in goods expanded 5 percent year-on-year in yuan terms, setting new records in both its scale and growth rate, according to customs data.

It wasn't easy for China's trade to grow amid the complex external environment, global economic uncertainty and US-led pressure on Chinese manufacturing, which underscores China's continuous efforts in going global. While there may be various difficulties and pressure that hinder Chinese companies from expanding globally, the pace of China's manufacturing expansion will not falter, but rather continue to forge ahead. 

This endeavor also requires continuous breakthroughs and transformation in China's foreign trade and investment.

In summary, the Middle East situation poses challenges to China's economy, prompting increased participation in international cooperation to promote regional peace and stability and safeguard global economic development. 

China must also expedite the structural transformation of its economy to enhance competitiveness and build resilience so as to navigate the uncertainties of the global economy.