The following transcript is a translation of an interview excerpt conducted by Guancha.cn with Lei Qian, a well-known political commentator from Taiwan.
Guancha.cn: The situation in Iran has been continuously escalating, with energy prices and overall geopolitical risks rising in tandem. Do you think this conflict could become the trigger for a new wave of global economic turbulence? Against the backdrop of ongoing U.S.-China competition, what does this mean for China’s energy security and its global strategy?
Lei Qian: China’s energy strategy has been in place for a very long time. Relatively speaking, in this round of conflict, the short-term impact on China will be comparatively limited. However, your question is absolutely valid. Since March 2, market volatility has already begun, and the impact on the global economy — including at the financial level — has reached a very high degree. Energy, bulk commodities, and safe-haven assets all appear to be rising sharply.
Another point worth noting is the impact on the far end of the curve — for example, long-dated energy futures. The risk premium on longer-term futures contracts has increased.
The same applies to U.S. Treasuries. When investors rush to buy Treasuries as safe-haven assets, short-term yields decline because of overwhelming demand. However, volatility in long-term yields increases. Market operators generally interpret this as a sign that long-term global risks are now far greater than before. Under safe-haven conditions, we must recognize that at least four to five major factors could allow current war risks to expand and spill outward through transmission channels.
First, inflation could reignite, and the trajectory of interest rates would be rewritten as a result. For example, a direct rise in oil prices would affect both inflation and interest rates, with spillover effects on emerging markets in Asia. While the direct impact on Europe would be particularly significant due to its close ties with the Middle East, Asia and other emerging markets would also be affected through renewed global liquidity tightening. Highly indebted countries would face greater fiscal pressure, and real estate as well as technology stocks would come under strain. Emerging markets would almost certainly be unable to avoid equity or debt crises.
Second, there is the dual effect of U.S. Treasuries and the U.S. dollar. In the short term, capital appears to be flowing into the dollar. But in the longer term, perceptions of U.S. debt-servicing capacity — that is, assessments of long-term U.S. risk — may change. As trust in the United States shifts, financial operations centered on the U.S. system could gradually experience a degree of capital flight and decoupling.
Other countries and regions, particularly capable middle powers, will likely seek to hedge by gradually loosening the financial linkages that have historically been tightly bound to the United States. We have observed this for some time — for example, rising gold prices and central banks increasing gold reserves as a precautionary measure. In financial markets, long-term interest rates will become highly unstable, yield curves will steepen sharply, and volatility in U.S. Treasuries will increase. All of this will reshape global allocations into dollar-denominated assets.
Third, asset prices will undergo repricing. In a war economy, many previously perceived “safe” investments may no longer be secure. Whether equities, emerging markets, or commodities, markets may evolve into a stagflationary financial structure characteristic of wartime economies. This is somewhat complex and perhaps too detailed to fully elaborate today.
Finally, the integrated financial structure underpinning globalization will inevitably fragment. For example, the global capital flows of Middle Eastern sovereign wealth funds, the United States’ global financial positioning, and the relatively free movement of capital across countries will all change. Prolonged instability in the Middle East would directly drive up insurance and shipping costs, and rising insurance premiums would affect the broader industrial insurance and financial structure.
In addition, project financing — such as funding overseas oil refining investments — would face higher risk premiums, making capital acquisition more difficult. Banks would increase risk weightings. Cross-border capital flows would decline, regional financial blocs would weaken to some extent, and the overall settlement system would become further fragmented. All of this would give rise to a new structural configuration.
Within this evolving structure, however, mainland China has long undertaken precautionary positioning. The internationalization of the renminbi — including the digital renminbi — is an important element. Diversification of energy sources and new forms of capital flow management have also strengthened China’s resilience. As a vast economic system, mainland China is relatively capable of absorbing the shock of this new wave of international turmoil. Of course, the kind of economic growth and relatively optimistic expectations typical of non-war economic environments may face constraints.
For other countries in the Global South, having an economy as large as China’s capable of stabilizing under such difficult wartime conditions provides a degree of demonstrative stability and positive resource support.
As we have just discussed, insecurity ultimately produces economic fractures. If the conflict continues to escalate, we may see: first, a rupture between inflation and growth; second, a rupture between financial markets and the real economy; third, a rupture between the dollar’s safe-haven function and trust in the dollar; and finally, a rupture between globalization and regionalization.
If war persists over a prolonged period, these four fractures may become inevitable outcomes through repeated aftershocks. The market data of March 2 is merely the beginning. We are witnessing the redefinition and repricing of the global financial architecture, which will lead to various fractures and reorganizations within the global economic structure.
Editor: Zhiyu Wang
