China's economy grew 5% in Q1 2026 despite the Middle East energy crisis, though prolonged Strait of Hormuz disruptions could pressure Beijing's 4.5%-5% growth target, Wood Mackenzie strategists said in a Monday note.
"The impact of the Middle East conflict has been limited in March, supported by cargoes already at sea and available storage at refineries," Yanting Zhou of Wood Mackenzie said Monday.
However, Zhou noted that with the Hormuz closure continuing in April, "the looming global energy crisis poses additional pressure on the country's growth target."
China faces risks to 55% of crude oil imports and 30% of liquefied natural gas imports from the strait closure, though reserves, coal switching and subsidies softened the immediate impact.
"Our base case assumes the strait remains closed for two months, but the risk of prolonged disruption is real given the difficulty of resolving the conflict," Zhou said.
Wood Mackenzie estimates China's non-state crude reserves can cover Middle East import disruptions for about 180 days, while total reserves could offset shortages for more than 270 days.
"The surge in EV exports provides an additional buffer to economic growth," Zhou said as China's electric vehicle exports climbed 77.5% over the year in Q1 and March shipments surged nearly 140%.
Electric two-wheeler exports to Southeast Asia accelerated in Q1 as shipments to Myanmar jumped 617%, while exports to Laos and Cambodia rose 26% and 34%, respectively, Wood Mackenzie said.
China's exports to the Middle East, which accounted for 7% of total exports in 2025, fell 42% over the year in March as rerouted shipping raised logistics costs and reduced transport capacity to about 10% of normal strait volumes.
China's petrochemical sector has started cutting production because tighter supplies of liquefied petroleum gas, naphtha and methanol from the Middle East increased feedstock shortages, according to the report.
Wood Mackenzie now expects China's inflation rate to rise to 1.9% in 2026 from a 0.1% decline in 2025, limiting Beijing's flexibility to cut interest rates or increase stimulus measures.
"Our analysis shows that cutting rates now risks fuelling even higher inflation, while holding rates steady will not address the weak private investment and consumption," Zhou said.
The analyst said that Wood Mackenzie believes "the Beijing government will wait until the Strait of Hormuz reopens before providing new stimulus."
Additionally, Zhou warned that prolonged disruptions could force deeper cuts to growth forecasts.