The Prof G Pod with Scott Galloway
China Decode: How the Iran War Inflation Will Impact China
10 Mar 2026
Transcript generated automatically by AI and may contain errors.
Chapter 1: What is the main topic discussed in this episode?
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I think the longer this drags out, yes, this will have an impact on China's oil imports and ergo prices, although it has about three to four months inventory in its strategic reserves. But more from a strategic point of view, the longer this drags out, I think it actually is net good for China because it can point to how chaotic the Trump administration has been. Welcome to China Decode.
I'm Alice Tan. And I'm James King. In today's episode of China Decode, we're discussing why China can't escape its dependence on the Strait of Hormuz, China's cautious growth targets in its new government work report for 2026. Plus, Semaphores' Andy Brown joins us to discuss how all of this is impacting the China-U.S. relationship.
Now that's all coming up, but first, let's do a quick check-in with how the markets in China are starting the week. On Monday, the Shanghai A-share index fell about 0.7%. The Hang Seng A-share index closed down 1.4%, paring back some losses after briefly falling to a six-month low. The Brent and WTI crude benchmarks both soared more than 20% before falling.
Energy stocks, China National Offshore Oil Corporation and China Shenhua Energy, both ended the day up over 3%. And property companies, Sun Hongkai Properties and Hanglong Properties, both closed down over 3% on fears of inflation that could delay or reverse expected cuts in borrowing costs. All right, let's get right into it.
Now, the war in Iran is hitting one of the world's most critical energy choke points, the Strait of Hormuz. This narrow waterway normally carries about 20% of global oil, but tanker traffic has plunged as attacks on ships and energy infrastructure escalate, leaving hundreds of vessels stuck and oil prices rising.
China, which gets roughly 40% of its oil through the strait alone, is now pressing Tehran to allow safe passage for its ships. But the bigger issue is structural. There simply aren't viable alternatives aside from the strait. Pipelines and other routes can't replace the massive volume moving through Hormuz, leaving the global economy deeply dependent on this single waterway even during a war.
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Chapter 2: How is the Iran war affecting global oil prices?
China has a debt to GDP ratio of about 340%. So whichever way you slice it, China does not get off the hook from from this Straits of Hormuz crisis. Just one final thing to say, even if you look at the amount of oil that China imported from Iran and you add that to Venezuela, which was also a country attacked by the US, that comes to about 17% of China's total crude oil imports.
So China's going to be hit there as well. I think that we're going to have to wait and see to see the full impact on China's economy. But I would say it's likely to come in two respects. One is obviously higher costs and greater difficulty in actually sourcing oil imports. And the other is an impact on potentially higher inflation. But Alice, you've been looking into this.
I know you're looking into this pretty intensively. What's your sense? How is all this going to play out for China? Well, I like the way that you framed it, James, in inflationary terms, as well as just the size, the sheer size of oil that is moving through that strait, that is significantly larger than what was coming out of Russia at the start of the Russia-Ukraine conflict a few years back.
I was looking at some of the data the other day, looking at some of the main countries and the energy impact on inflation. Some of the, I think, worst off countries, Italy. Italy is going to see surging energy prices, pushing inflation north of 3%. The UK is in a bad position, north of 2.5%. Japan, also heavily dependent.
mainly on LNG side of things, because it has a pretty robust oil inventory. But elsewhere, China's actually in a better off position, and actually a bit of inflation might be good, as you know.
We've had pretty deflationary pressures in the economy, so we could see energy prices push up the CPI closer to 1.5%, which I don't think would worry the PBOC too much, frankly, and it might be good to put some more inflationary pressure in the economy.
But if I put it all together and add geopolitics to the mix, what is clear is that the U.S., aside from issuing a very decisive strike on Iran with Israel's cooperation, is now, I think, seeing the aftermath of its, I would largely say, ill-thought-out or ill-conceived strike on Iran.
And that is because, as we've noted, I don't think the Trump administration really understood the economic impact, not just through oil, but also through aluminium markets, which are already very stretched. We've seen aluminium prices rise considerably, but also the fertiliser market.
And I don't think that the Trump administration understood those price effects of launching strikes, military strikes, to decapitate Khomeini and now more members of the IRGC. And I mention a fertilizer because actually, much like in the Russia-Ukraine conflict, where there were a lot of agricultural inputs, fertilizers, wheat,
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Chapter 3: What role does the Strait of Hormuz play in China's oil imports?
So it will be interesting to see whether or not this is folded in discussion. Now, again, we've got Besant meeting He Lifeng, the Chinese trade counterpart, in Paris in just a few days, actually where I'm at at the moment. So it'll be interesting to see if that comes up. Now, history shows that that could well come up.
I'm a little bit skeptical myself, but we'll definitely have to watch the space in the coming days. And I think that whether or not something comes out of it will have an impact, of course, on Trump's trip to China very soon. Okay, we'll be back with more after a quick break. Stay with us. Support for the show comes from Liquid IV.
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Chapter 4: How is China's economy responding to rising oil prices?
So, you know, in global competition, winners and losers are going to be settled in the China marketplace. So you have to be in China. US companies know that they have to be in China. And look, China needs the investment. It needs the competition for its own companies. It doesn't want to be North Korea. And it wants to be a global player. And in terms of technology, so much of the input
on Chinese technology products and exports comes from the United States, Japan, South Korea. We often overestimate this whole issue around self-reliance. I was just talking to somebody the other day, a company that strips down products and looks at where the value is and
On the iPhone, it's still 50% of the iPhone comes from the United States, 30% comes from Korea, 12% from Taiwan, very small percentage from China. So China needs the world. And this isn't autarky. With your point about the iPhone, Andy, isn't the real threat to a lot of these foreign companies and investors that China is just making cheaper, more plentiful versions of the Apple iPhone?
That we're seeing a style of self-sufficiency that really is about replacing some of the products and goods that the West has been able to provide and sell in China with Chinese variations. You know, you see this in EVs, you see this in iPhones, you certainly see this in other green technologies as well. Isn't that the risk?
And shouldn't, you know, we all carry a grain of salt when they talk about opening up. Certainly, I saw in the government work report, there's talk about services being opened up to foreign investors, especially in telecoms, biotech, maybe even digital finance and education. How seriously should we take those policy intentions. Don't forget the pushback, right?
I mean, tariffs, sanctions, embargoes, not just from the West, but also from developing economies. Southeast Asia wants to have an industrial sector. It doesn't want to be bossed around by China. Look at Indonesia putting up enormous tariffs to Chinese products. So China doesn't have it all its own way. And it understands that it has to be, it is an integral part of the global economy.
And unless it does allow companies in, it's going to face increasing pushback around the world, including in the United States. But for U.S. companies, I guess the issue is this, or for policymakers, the issue is this. How do you compete? One way of doing it is to put up tariff barriers. So we're seeing that sky-high barriers, and then your companies shelter behind them.
There's a big risk and a national security risk because your companies then become less competitive. You end up like Havana, Cuba, which is a real threat, a real risk now that Detroit...
Is running or potentially you team up with Chinese players, licensing arrangements, JV arrangements, and that actually may be something that Trump and Xi and his and their teams can be talking about now ahead of this summit. Andy, just switching the focus for a second. You've lived in Taiwan, and as I mentioned earlier, you've lived in China as well. Do we expect anything new in terms of U.S.
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