---
title: China's Economy Speeds Up as the Iran War Energy Shock Hits the US and Its Allies
description: China grew 4.5% in Q3 and exports jumped 29.6% in September while the Iran war oil shock lifts US inflation and Washington eases sanctions on Russian diesel.
author: Darie Nani (Editor-in-Chief)
date: 2026-10-19T12:24:35.375Z
updated: 2026-10-19T12:24:35.393Z
canonical: https://www.sovereignmagazine.com/article/china-economy-iran-war-energy-shock
image: https://cdn.nanimediahouse.com/pexels-aerial-shot-of-xiamen-s-bustling-port-with-stacked-shipping--17737857.jpg
categories: Economy
content_type: Analysis
region: Global
publication: Sovereign Magazine
schema_type: Article
---

China's economy grew 4.5 percent year on year in the third quarter, up from 4.3 percent in the second, and its exports jumped 29.6 percent in September, [the National Bureau of Statistics said on Monday](https://www.stats.gov.cn/english/PressRelease/202610/t20261019_1965619.html). The US and Israel went to war with Iran on February 28. The strikes led to the closure of the Strait of Hormuz and, in April, a ceasefire that [Trump presented as a win](https://www.sovereignmagazine.com/article/trump-capitulates-iran-peace-plan). Middle East oil flows remain constrained, and the US Energy Information Administration assumes they will stay that way through the end of the year.

US consumer prices rose 3.7 percent in the year to September, with gasoline up 34.2 percent, CBS News reported, and the Federal Reserve raised interest rates in September for the first time since 2023. In May the European Commission cut its forecast for EU growth this year to 1.1 percent. So far China has weathered the energy shock better than the US and its allies, while Washington has eased sanctions on Russia, one of its rivals: the Treasury waived sanctions on Russian oil in March, and on October 9 it lifted sanctions on Russian diesel for six months.

## China Stocked Up on Oil Before the War and Buys Iranian and Russian Crude at a Discount

China raised its oil imports by 16 percent in January and February, before the first strikes, and as of late March held 1.3 billion to 1.4 billion barrels in combined strategic and commercial reserves, roughly four months of imports, according to Elina Ribakova and Alicia Garcia-Herrero of the Peterson Institute for International Economics. Iran supplied 13 percent of China's oil imports at discounted prices, under a 25-year cooperation agreement in place since 2021. Beijing negotiated directly with Tehran for safe passage for Chinese-flagged vessels, and more than 11 million barrels of Iranian crude flowed east in the first weeks of the war, paid for in renminbi through CIPS, China's cross-border payment system, the two economists wrote in [an analysis titled "How Russia and China are winning the war in Iran"](https://www.piie.com/blogs/realtime-economics/2026/how-russia-and-china-are-winning-war-iran).

China also buys Russian crude at a steep long-term discount. China was in deflation before the war, so higher oil prices help Beijing, the PIIE economists argued: "A moderate oil-price rise is reflationary for Beijing," Ribakova and Garcia-Herrero wrote, adding that "Chinese factory goods stay competitive as Western input costs rise faster." Producer prices in China rose 5.0 percent year on year in September, according to the statistics bureau.

Industrial output rose 5.3 percent in the first three quarters and high-tech manufacturing 14.3 percent, while exports rose 16.4 percent to 23.2 trillion yuan, the bureau said. Energy consumption per unit of GDP fell 3.1 percent, Xinhua reported, citing Mao Shengyong, the bureau's deputy head.

## Higher Fuel Prices Are Pushing Buyers Toward Electric Cars, a Market China Leads

The Globe and Mail's Eric Reguly argued on October 17 that higher fuel prices are adding to China's lead in clean energy, under the headline "Trump's war on Iran hands China clean-energy and EV wins". Electric car sales in the EU, Britain, Switzerland and Norway rose 52 percent in August from a year earlier, and 75 percent in Germany, Reguly wrote.

China makes about 80 percent of photovoltaic modules and about 70 percent of wind-power equipment, according to figures from the China Electric Power Planning and Engineering Institute cited by Reguly, and Chinese brands account for 70 percent of Mexico's EV market. China's output of lithium-ion batteries rose 39.5 percent in the first three quarters, the statistics bureau said. In the US, electric vehicles make up under 7 percent of car sales, Reguly wrote. Sovereign reported last November that [America had already lost the energy transition to China](https://www.sovereignmagazine.com/article/too-little-too-late-america-lost-the-energy-transition-to-china-trump-s-400m-won-t-change-tha).

## US Fuel Prices and Inflation Rose as the EU Cut Its Growth Forecast

Regular gasoline averaged $4.33 a gallon according to AAA, against $2.98 before the war started, CBS News reported, and energy prices overall were up 20.4 percent on a year. Diesel has risen 70 percent since late February, NBC News reported. The EIA said East Coast distillate inventories were 32 percent below their five-year average in September, and its outlook includes 40 million barrels of exchanges from the Strategic Petroleum Reserve announced on September 29. The agency now expects Brent crude to average $105 a barrel in the fourth quarter, $14 more than it forecast a month earlier, in its [October Short-Term Energy Outlook](https://www.eia.gov/outlooks/steo/).

The Fed raised its target range by a quarter point to 3.75 to 4 percent on September 16, saying "Inflation remains elevated," while also saying "Economic activity is expanding at a solid pace." In March, Ribakova and Garcia-Herrero had warned that "The US risks walking into a stagflation trap that was entirely avoidable."

In its May forecast the European Commission said the outlook for the US, as a major net energy exporter, had strengthened. The Commission described the war as causing "one of the most significant global energy supply disruptions in recent history." It cut its forecast for EU growth this year by 0.3 points to 1.1 percent and raised its inflation forecast by a full point to 3.1 percent.

## Washington Lifted Sanctions on Russian Diesel for Six Months

The Treasury first waived sanctions on Russian oil in March, a step the PIIE economists called "the first major relaxation of sanctions on Russia since 2014." On October 9, the Treasury's Office of Foreign Assets Control issued General License 135, which authorizes transactions in Russian-origin diesel through April 7, 2027. It followed Trump's announcement the same day of a deal with Russia to release 300,000 tons of diesel immediately. Russia had not confirmed the deal, the law firm Clyde & Co said in a client alert, adding that the license "sits in tension with" the 2022 Ending Importation of Russian Oil Act. Reguly called it a "cynical deal with Russia to lift the sanctions on exports of the fuel." PIIE's economists wrote in March that Washington had "delivered a windfall to Russia by temporarily waiving sanctions," and wrote that as a result of the war "Russia receives a fiscal rescue worth tens of billions of dollars, while China's strategic position is potentially strengthened."

## China's Retail Sales Rose 1.1 Percent as Investment Fell 7.2 Percent

Retail sales of consumer goods rose only 1.1 percent in the first three quarters, fixed-asset investment fell 7.2 percent and real estate investment fell 20.6 percent, and the statistics bureau said "the issue of insufficient domestic demand remains prominent." Industrial purchasing prices rose 6.9 percent in September, faster than the prices factories charged. Europe takes 15 percent of China's exports, and a recession in Europe or the US would cut Chinese export orders, the PIIE economists warned.

## FAQ

**Q: Is inflation rising in China?**
Only slightly. Consumer prices rose 0.9 percent in the first three quarters and 0.9 percent in September, according to the National Bureau of Statistics.

**Q: How much have China's imports grown?**
Imports rose 22.3 percent in the first three quarters and 24.6 percent in September, measured in yuan, the statistics bureau said.

**Q: How fast did China grow quarter on quarter?**
GDP rose 1.2 percent in the third quarter from the second, according to the bureau.

**Q: Where are oil prices now?**
Brent crude traded at $106 a barrel on October 16, up 73 percent over 12 months, The Globe and Mail reported.