Recent tensions in the Middle East have escalated. Iran, in retaliation against the US and Israel, bombed their important energy facility, the South Pars oil and gas field, and announced it would proactively attack other Middle Eastern oil facilities. With the Strait of Hormuz still effectively blockaded, an oil supply crisis seems imminent. Welcome to DDN Business Insider. For this episode of "Turning Market into Gold," we invited renowned economist Mr. Song Qinghui and Ms. Liu Ying, researcher at the Chongyang Institute for Financial Studies, Renmin University of China, to analyze the energy crisis and global economic impacts under the current Middle East situation. Hello to you both!
Facing the supply shock from the closure of the Strait of Hormuz and the consequent surge in international oil prices, we've seen U.S. President Trump publicly call on allies last week to escort convoys through the Strait. However, his allies have reacted coolly and stated they will not deploy warships at present. Mr. Song, why do you think countries have responded this way?
The core reason, in my view, is likely to lie in an asymmetry of costs and risks. First, military intervention would mean direct involvement in regional conflict and could provoke direct clashes with Iran or allied forces, carrying extremely high political risk. Second, European and Asian countries, while generally dependent on Middle Eastern energy, are unwilling to bear disproportionate security costs for this U.S.-led security strategy—especially given domestic fiscal constraints and public opinion pressures. Third, the current international order is becoming more multipolar, and allies' dependence on U.S.-led unilateral calls to action has declined; they prefer to resolve issues through diplomacy or multilateral mechanisms. Therefore, should escort operations escalate into conflict, the subsequent deterioration of global supply chains would ultimately harm those very countries' own economic interests. Thus, countries' choices to offer verbal support while acting cautiously are essentially expressions of strategic restraint and risk avoidance.
All right, high oil prices have become a challenge faced by the world collectively. The International Energy Agency earlier announced the release of 400 million barrels from strategic reserves and said it would release more if necessary. Mr. Song, to what extent can this confirmed volume of reserve releases help stabilize oil prices?
Overall, the IEA's release of 400 million barrels of strategic petroleum reserves serves as a short-term psychological stabilizer, but its ability to suppress oil prices over the medium to long term is limited. In my view, if the Strait of Hormuz is closed for a prolonged period, it would affect roughly 20% of global oil shipments—a structural supply shock. Relying solely on reserves cannot fully offset that. The greater significance of reserve releases is in smoothing price volatility and preventing extreme spikes, rather than changing the underlying trend. If the geopolitical conflict persists, markets could quickly absorb the positive impact of the reserves, and oil prices would likely remain at elevated, volatile levels. Therefore, I see this measure as an emergency buffer rather than a fundamental solution.
Okay. Regarding the IEA's phrase "if necessary," what do you think it specifically refers to? Under what circumstances would the IEA further release energy reserves?
When the IEA says, "if necessary," it usually corresponds to three scenarios. First, a further widening of supply interruptions—for example, a prolonged closure of the Strait of Hormuz, or disruptions spreading to other critical routes such as Red Sea shipping lanes. Second, an uncontrolled surge in oil prices—for instance, breaching critical psychological thresholds such as over $150 per barrel and triggering turmoil in global financial markets. Third, a clear impact on the real economy—such as major economies experiencing energy shortages, industrial shutdowns, or a sudden worsening of inflation. In addition, if hoarding behavior or speculative frenzy intensifies, the IEA might also release reserves to manage market expectations. From the current situation, as long as the conflict shows no clear signs of easing and transport bottlenecks persist, the IEA is likely to retain the possibility of further releases; however, I believe it would choose a gradual rather than a one-off release in order to extend the policy's effective duration.
Understood. Besides the IEA, countries such as Japan and South Korea have also announced plans to release oil reserves. The world's largest oil exporter, Saudi Arabia, has activated an emergency scheme to reroute crude around the Strait of Hormuz via a 1,200-kilometer pipeline to its western Yanbu port. Previously released data show Yanbu's average daily export capacity is about 4.19 million barrels—already more than half of Saudi Arabia's daily exports before the conflict. Ms. Liu, how do you assess the series of countermeasures countries are taking now?
Overall, these measures help cushion the shock but are unlikely to fundamentally resolve the crisis. In terms of reserve releases, they stabilize prices in the short term and strengthen market confidence: collective action by the IEA's 32 member countries, including Japan and South Korea, essentially increases short-term oil supply to suppress panic-driven spikes and speculative behavior and to stabilize market expectations. This is effective for managing short-term market volatility, but it does not change the supply-demand structure. Saudi Arabia's rerouting plan is the most substantive additional supply measure: it creates a new export route rather than being a temporary expedient, and it is one of the relatively more effective structural mitigation measures available now. However, it also faces several constraints, including limits on throughput capacity and the fact that other countries lack similar alternate routes. Taken together, the effect is to buffer the shock but not to reverse the trend. In conclusion, it may alleviate roughly 30–40% of the shock, but a significant supply gap would still remain. On the market side, its real impacts show up in two ways: it prevents an uncontrolled price surge, and it buys a time window.
Overall, these actions can moderate oil price increases and stabilize expectations, but they cannot replace a fundamental solution or change the underlying trend.
- OK. Considering differences in countries' energy self-sufficiency and their reliance on shipping through the Strait of Hormuz, which countries are likely to face the most severe energy supply challenges in a prolonged conflict?
In terms of reserve scale and energy structure, the countries under the greatest pressure are those highly dependent on imports from the Middle East and with limited domestic resources, such as Japan and South Korea. Although South Korea and Japan have relatively large reserves—22.46 million barrels and 80 million barrels, respectively—their energy dependence on foreign sources is extremely high. In the event of a prolonged conflict, their ability to replenish supplies is very limited, placing them in a structure characterized by high dependence and high consumption.
European countries, such as France, have more diversified energy mixes but have already borne energy stress after the Russia–Ukraine conflict; added Middle Eastern risks will clearly increase their pressure. By contrast, the United States, with substantial shale oil production, has some buffering capacity. Developing countries face even greater problems: they lack reserves and fiscal space, so prolonged high oil prices could directly threaten economic stability and livelihoods.
Therefore, from a systemic-risk perspective, Asian importers and emerging economies would face the greatest pressure.
Overall, a ceasefire is indeed the fundamental solution. Ms. Liu, what key conditions do you think are needed for the Middle East situation to ease?
The most critical, in my view, is diplomatic mediation to contain spillovers and prevent escalation. Whether through the United Nations, the Shanghai Cooperation Organization, or other multilateral mechanisms, efforts should be made to de-escalate tensions, secure commitments not to attack energy infrastructure, and establish crisis communication and control mechanisms to avoid strategic miscalculation.
Among all measures, this non-economic diplomatic channel is the most crucial. Several other variables will determine whether the Middle East calms down. One is the strategic choices of major powers—this is decisive. It matters whether the United States opts for limited pressure or continued escalation, and whether it is willing to accept boundaries that control the scale of the conflict; essentially, whether the conflict is managed or amplified. Iran's degree of strategic restraint is another trigger variable—whether it will actually close the Strait of Hormuz or expand the scope of attacks. A full blockade would rapidly escalate the situation into a global crisis. The ability of third-party mediators, including China, the EU, and other countries, is also an important buffering variable. In conclusion: in the short term, energy issues can be mitigated through a mix of supply, demand, financial, and security tools; but in the long term, the single decisive factor is whether the conflict is actively controlled by the major powers and the parties involved.
Yes. Currently the main impact of the Middle East situation is oil price volatility, but some analysts predict its deeper effects could spread to agricultural markets and even trigger systemic inflation. Mr. Song, why would an energy crisis cause volatility in agricultural markets and inflation risk?
Rising oil prices affect not only energy costs but also transmit to agricultural markets and the inflation system through multiple channels. First, agriculture is highly energy-intensive—things like fertilizer production, farm machinery, and irrigation depend on energy; higher oil prices directly raise production costs. Second, higher transportation costs cause broad increases in grain and food prices. Third, energy is a fundamental input price; once it rises, the increase propagates up the industrial chain, generating cost-push inflation.
In addition, market expectations can amplify the impact. For example, if businesses and consumers expect prices to rise, they may raise prices in advance or hoard goods, further reinforcing inflation. If oil prices remain high for a prolonged period, localized energy inflation can evolve into broad-based inflation, even triggering stagflation-like risks, and thereby inflicting systemic shocks on the global economy.
- OK. Facing this potential systemic risk, Mr. Song, what concrete measures can governments take to guard against inflationary risks that arise from linkages between energy and agricultural markets?
First, in the short term, governments can subsidize energy or key staple goods to buffer household pressure. Second, use monetary policy to manage inflation expectations, but balance this against economic growth to avoid excessive tightening. Third, strengthen strategic reserve management and international coordination to avoid uncoordinated national responses. Fourth, accelerate the energy transition to raise energy self-sufficiency. Fifth, reinforce food policy and security measures—such as increasing stockpiles and improving supply-chain management. More importantly, in my view, countries should pursue diplomatic coordination at the international level to further reduce geopolitical risks.
Fundamentally, an energy crisis is not purely an economic problem but a political and security problem; only when the situation eases can markets truly stabilize.
Okay, Ms. Liu, how do you think governments can forge a joint response to address this cross-sector, cross-region risk transmission?
I think the first priority is to stabilize energy and contain the source of the shock—the goal is to prevent oil prices from spiraling out of control. The second is to secure agricultural supply and stabilize the food side—the objective being to prevent yield declines and runaway food prices. Third is to stabilize markets and control inflation to buffer the transmission chain—the aim is to prevent inflation from spreading throughout society. Fourth, strengthen supply chains to reduce the amplifying effect of rising costs—the goal being to avoid artificial exacerbation of shortages. Fifth, enhance international coordination and avoid uncoordinated national actions; this is the most crucial long-term instrument. Finally, pursue structural responses to improve shock resilience—over the medium to long term build a more diversified supply system.
【Anchor】OK, thank you to both guests. That's all for this episode. Remember to follow us on YouTube or download our APP. I'm Yunfei Zhang, thanks for watching, and see you next time.
Anchor: Laura Cheung | Edited: Kelly Yang, Laura Cheung, Rachel Liu | Translate: Kato Ip | Proofread: Chris Liu
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