Introduction

Is this a case of 'a fire on the city gate bringing disaster to the fish in the moat,' or perhaps 'misfortune at first, but a blessing in disguise'?

On the final day of February, at 14:20 local time, a violent explosion rocked Tehran, the capital of Iran. Israel announced the commencement of an attack, and Iranian authorities declared a nationwide state of emergency, reigniting conflicts in the Middle East.

Following the initial strike by the Israeli Air Force, a joint U.S.-Israeli operation codenamed 'Epic Fury' was fully launched. By the afternoon of February 28th, the U.S. and Israel had conducted sequential airstrikes on approximately 30 targets, including the presidential palace in Tehran and areas near the office of the Supreme Leader. More than 70 minutes into the first wave of attacks, at 15:30, U.S. President Trump confirmed the involvement of U.S. forces in the airstrikes and vowed to 'level' Iran's missile industry.

The scene shifted to March 1st. At 02:38 that morning, Iran initiated 'Operation True Promise 4,' launching multi-wave missile and drone attacks on U.S.-Israeli targets across a broad swath of the Middle East, including 'suspected U.S. assets.' By 20:00 that evening, Iran announced the blockade of the Strait of Hormuz, seizing control of this critical chokepoint that supplies a quarter of the world's oil.

Amid Iran's series of counterstrikes, military hubs and related facilities—such as Hakiryah (IDF General Staff) and the large defense industrial park in Tel Aviv, Israel, as well as the U.S. Fifth Fleet headquarters in Bahrain and the Al Udeid Air Base in Qatar—came under attack. Even iconic landmarks and key civilian infrastructure, like the Burj Khalifa in Dubai and Dubai International Airport, were affected.

In 2025, the Middle East, which had become a significant growth area for China's automobile exports and a crucial hub for global energy and resources, was suddenly engulfed in conflict. This article provides a comprehensive assessment of the direct and indirect impacts on China's automotive and related industries.

01 Short-Term Impacts from a Market Perspective

Throughout 2024, China exported a total of 871,700 vehicles to the Middle East. By 2025, exports to just Saudi Arabia (302,000 vehicles) and the United Arab Emirates (572,000 vehicles) had already reached 874,000 units. For the entire year of 2025, market growth in Saudi Arabia and the UAE was projected at 9.6% and 73%, respectively.

Including exports to Iran, Israel, and Turkey (351,000 vehicles in total: 164,000 + 101,000 + 86,000), along with an estimated 30,000 vehicles to Iraq (with only partial data available, including 18,000 units in the first half of the year), the entire Middle East region was expected to reach a total of 1.25 to 1.30 million vehicles in 2025. Using conservative estimates, this represents a growth rate exceeding 30% compared to 2024.

Under the original plan for this year, with several Chinese automotive groups completing industrial layouts in Southeast Asia and even locally in the Middle East, there was hope for further expansion in the vast Middle Eastern market. However, with the sudden outbreak of war, there is now a risk of reverting to the situation in 2024.

Of course, specific issues require specific analysis. The current war risks should be divided into two scenarios for overall impact assessment: a short-term military conflict (ending within three months) or a prolonged one (lasting more than three months).

From a purely market perspective, Iran's blockade of the Persian Gulf has completely halted maritime automotive imports and exports in key coastal markets (UAE, Saudi Arabia, Qatar, etc.). Not only are orders unable to be delivered on time, but inventories (of both finished vehicles and parts) cannot be effectively replenished.

In short, even if the conflict ends in the short term, the entire Middle Eastern market will suffer severe damage in the first half of this year. Consumer confidence in the conflict zone and surrounding markets will be heavily shaken, and automobile sales will nearly grind to a halt. Sales plans for global automakers, including Chinese companies, will be disrupted, leading to a sharp decline in local car sales.

From an industrial perspective, the impact extends far beyond the automotive market. Given that the Strait of Hormuz handles more than 20% of global oil transportation, the blockade will inevitably lead to a sharp rise in international oil prices in the short term. Additionally, considering that China is a key supplier of methanol and celestine (used to extract strontium, an essential element for permanent magnet motors) to Iran, the current situation is bound to affect the domestic chemical industry and, by extension, the automotive sector.

Methanol is an extremely important solvent in the chemical industry and plays a vital role in producing antifreeze, processing eco-friendly fuels, and ethanol denaturants. It can also be used to produce olefins—crucial for the plastics, chemical fiber, and synthetic rubber industries—through the methanol-to-olefins process at low cost.

In 2025, China imported approximately 7.5 million tons of methanol from Iran, accounting for more than half of total imports. A significant reduction or cutoff of methanol supplies from Iran will inevitably impact related domestic industries, with ripple effects spreading across various sectors over time.

While the potential cliff-like drop in methanol imports is concerning, the uncertainty surrounding celestine supplies has a more direct impact on the domestic automotive industry.

Celestine is used to produce strontium carbonate, and strontium is an indispensable raw material for manufacturing high-performance permanent magnet motors.

Since Iran possesses the world's highest-grade celestine deposits, with ore grades generally above 85% (far higher than domestic ores at 35-60%) and low mining costs, it has long been the largest global supplier of celestine minerals. Given that China's dependence on imported celestine reaches 78%, with over 60% of supplies coming from Iran, the expanding chaos makes the risks to the celestine supply chain undeniable.

Furthermore, if the conflict spreads to the Bab el-Mandeb Strait, it will further threaten the safety of the Red Sea-Suez Canal route, a major maritime artery between Asia and Europe. If ships are diverted around the Cape of Good Hope, voyage lengths will increase by 10-14 days. Combined with soaring fuel costs due to reduced oil supplies, container costs will rise significantly. This will affect Chinese automobiles transshipped to Europe via this route, as well as the transportation of automotive parts between China and Europe.

02 Strategic Layout to Hedge Long-Term Risks

Now that conflicts have ignited in this critical region of the world, all industrial nations, including China, are bound to be affected, especially those automotive groups previously ambitious about the Middle Eastern market.

However, while short-term disruptions are widespread, from a strategic standpoint, if the conflict becomes prolonged, it could, to some extent, unexpectedly promote adjustments to the existing industrial system.

Widespread attacks cannot sustain indefinitely, and the nature of the Middle East ensures that automotive consumption demand will continue to expand steadily over the long term. If the conflict becomes prolonged and chronic, markets in surrounding countries (except Iran) will gradually become numb and adapt. After all, life must go on for everyone.

Once the conflict drags on beyond three months, with a state of neither war nor peace and sustained low-intensity attacks, the situation will evolve further.

For domestic automotive groups, the immediate priority is to assess the situation and, if necessary, suspend shipments to high-risk areas in the Persian Gulf, prioritizing supply to relatively stable markets such as Europe, Southeast Asia, and Latin America.

Automotive groups with operations in the Middle East will seek alternative routes, such as transshipment through Oman's Salalah Port followed by land transportation, or unloading at Jeddah Port along the Red Sea coast. Although this will increase costs and reduce efficiency, price hikes during extraordinary times are a common corporate response to such situations. Prolonged unrest will force the Chinese automotive industry chain to accelerate the search for alternative sources or promote the localization of critical materials, though the transition period will raise manufacturing costs.

From a medium-term perspective, domestic authorities should urgently evaluate and expand diversified supply channels for key materials such as methanol and strontium ore. Russia is currently one of the world's major methanol exporters. Given the significant trade surplus in Sino-Russian trade, substantial methanol orders could help balance trade. Such changes might even yield unexpected benefits, such as prompting Russian interest groups to relax various restrictions on Chinese automobile exports to Russia, thereby reviving growth in complete vehicle (finished vehicle) exports to Russia.

Regarding celestine supplies, while using inventories to weather the current crisis, efforts should be made to develop new sources. For example, Badakhshan Province in northeastern Afghanistan has celestine deposits comparable to Iran's, with some ore grades as high as 90% and reserves of 50 million tons, representing a long-term viable option. To prepare for contingencies, domestic deposits, though relatively low-grade, should not be abandoned; self-sufficiency must be ensured to some extent, even at higher costs.

Meanwhile, domestic new energy companies should leverage the current window of high oil prices to intensify the promotion of hybrid and pure electric vehicles in the Middle Eastern market, striving to turn 'crisis' into 'opportunity.'

With the cutoff of Persian Gulf oil supplies, the potential energy crisis will fundamentally strengthen the economic advantages of electric vehicles. In particular, China's hybrid vehicles, which function as mobile power stations, will demonstrate value far beyond traditional automotive scope when viewed against the backdrop of regional conflicts.

In the future, we may see reports from the Middle East of households, communication facilities, hospitals, and schools relying on the external power supply capabilities of Chinese new energy vehicles for emergency electricity. This will not only significantly accelerate the electrification of vehicles in Middle Eastern oil-producing countries but also, due to the looming energy crisis, trigger a second wave of new energy adoption in the global automotive industry.

Some may fear that prolonged chaos will erase the hard-won market gains in the Middle East. However, such thinking fails to grasp the essence of the issue.

In reality, the current situation in the Middle East will fundamentally damage the interests of the United States and its allies, likely affecting the reputation and business of European, American, Japanese, and South Korean automotive brands in the region and driving Middle Eastern consumers toward Chinese companies with better reputations.

The Middle East conflicts serve as both a 'stress test' for Chinese automobiles going global and a catalyst for accelerating the restructuring of the global industrial landscape. In the short term, market and supply chain disruptions are inevitable; but in the long term, high oil prices and supply chain crises will irreversibly strengthen the rationale for electric vehicle adoption and force the global automotive industry chain to shift from 'efficiency first' to 'safety and resilience first.'

At this stage, global systemic competition has entered a fierce phase, especially in the automotive industry, which is increasingly extending toward the strategic level. Ultimately, strategic resolve and overall layout will determine success. After all, the world is vast and complex, with constant changes and shifts in circumstances. Chinese companies going global must accelerate their adaptation to such inevitable challenges in globalized operations.

Only through refinement and tempering, leveraging the full industrial chain advantages in new energy, flexible supply chain reconstruction capabilities, and stronger adaptability to volatile markets, can the Chinese automotive industry secure its position in this turbulent era—

Not merely to fill the vacuum left by the potential withdrawal of European, American, Japanese, and Korean automakers from the Middle Eastern market, but also to use this as an opportunity to translate technological advantages into solid market dominance and rule-setting power in the global industrial system confrontation, ultimately achieving a historic leap from 'market-for-technology' to 'technology-winning-market.'

Editor: Du Yuxin Editor: He Zengrong

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