China’s Auto Industry Crisis and Strategic Breakthrough Amid Middle East Conflict

On the last day of February, at 14:20 local time, a powerful explosion rocked Tehran, the capital of Iran. Israel announced it had launched the attack, and Iranian authorities declared a nationwide state of emergency, reigniting the conflict in the Middle East.

Image: Unexpected, yet logical

Following the first strike by the Israeli Air Force, the US-Israel joint operation codenamed "Epic Fury" was fully launched. Before 2:30 PM on February 28, the US and Israel conducted aerial strikes on about 30 targets in sequence, including the presidential palace in Tehran and areas near the office of the Supreme Leader. Seventy minutes after the first wave of attacks, at 3:30 PM, US President Trump confirmed the participation of the US military in the air strikes and declared his intention to "flatten" Iran's missile industry.

The time moved to March 1st, and at 02:38 in the early morning, Iran launched the "True Promise 4" counterattack, striking U.S. and Israeli targets, as well as "suspected U.S. assets" across a wide area in the Middle East with multiple waves of missiles and drones. At 20:00 that evening, it further announced the blockade of the Strait of Hormuz, choking off this critical chokepoint that supplies one-quarter of the world's oil.

Image | Even iconic landmarks such as the Burj Khalifa in Dubai—the world’s tallest building—are not exempt.

And in a series of countermeasures launched by Iran, not only were military hubs and related facilities such as the Kirya (IDF General Staff headquarters) in Israel, large defense industrial parks in Tel Aviv, the building of the US Fifth Fleet Command in Bahrain, and the Al Udeid Air Base in Qatar struck, but even the world's tallest building, the Burj Khalifa in Dubai, Dubai International Airport, and other important landmark buildings and key civilian hubs were also affected one after another.

In 2025, the Middle East, once an important growth point for China's automotive exports and even a crucial hub for global energy and resources, suddenly erupted into chaos. This article will provide a general assessment of the direct or indirect impact of this situation on China's automotive industry and related sectors.

01From the market perspective, short-term impact

In 2024, the total number of Chinese cars exported to the Middle East was 871,700 units. In 2025, the total exports to Saudi Arabia (302,000 units) and the UAE (572,000 units) alone reached 874,000 units. In 2025, the increase in the Saudi Arabia and UAE markets was 9.6% and 73%, respectively.

If we also include exports to Iran, Israel and Turkey of 351,000 units (164,000 + 101,000 + 86,000), plus an estimated 30,000 units for Iraq (with only partial data available, totaling around 18,000 units in the first half of the year), the total for the entire Middle East region in 2025 could reach approximately 1.25 to 1.3 million units. Based on a more conservative figure, this represents a growth of over 30% compared to 2024.

In the original plan this year, with multiple Chinese vehicle groups completing their industrial layout in Southeast Asia and the Middle East, there was hope for further progress in the Middle East market. However, with the sudden outbreak of war, the entire situation is at risk of regressing to that of 2024.

Of course, specific issues require specific analysis. Although the current war risk we face should be analyzed in two dimensions: whether the military conflict can be resolved in the short term (within three months) or whether it becomes prolonged (beyond three months), to assess its overall impact.

Photo | Hongqi HS7 PHEV arrived in Dubai

First, from a purely market perspective: Since Iran announced the closure of the Persian Gulf, maritime import and export of automobiles along the Gulf coast—including major markets such as the UAE, Saudi Arabia, and Qatar—have completely halted, resulting not only in delayed order deliveries but also in ineffective replenishment of inventories (both finished vehicles and components).

Even if the conflict can end in the short term, the entire Middle East market will be severely hit at least during the first half of this year. Consumer confidence in the conflict zone and surrounding areas has been seriously damaged, and car sales have nearly come to a standstill. Sales plans of both Chinese and global automakers in the region will all be disrupted, and local car sales will plummet.

Furthermore, from an industrial perspective, the impact goes far beyond the automotive market. Given that the Strait of Hormuz handles over 20% of global oil transportation, a blockade would lead to a surge in international oil prices, and a short-term sharp rise in global oil prices is already unavoidable. Additionally, considering that China is a key supplier of methanol and celestite (used to extract strontium, an essential element for permanent magnet motors), the current situation is bound to affect China's chemical industry and even the automotive industry.

Methanol is an extremely important solvent in the chemical industry and also plays a vital role in the production of antifreeze, the processing of eco-friendly fuels, and as a denaturant for ethanol. Moreover, it can be used to produce olefins—key raw materials for plastics, chemical fibers, and synthetic rubber—via the methanol-to-olefins (MTO) process at low cost.

In 2025, China imported approximately 7.5 million tons of methanol from Iran, accounting for more than half of its total imports. A significant reduction or complete disruption of methanol supplies from Iran would inevitably impact domestic industries, starting from the chemical sector and cascading across various sectors, exerting widespread effects on multiple industries over a certain period.

A potential sharp decline in methanol imports and uncertainties in celestite supply would directly impact China's automotive industry.

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

Image: In general perception, although strontianite is not considered a gemstone, it has collectible and touchable value due to its beauty after grinding and cutting. However, its color comes from the strontium it contains, which is an essential material for high-performance permanent magnets.

Due to Iran's possession of the world's highest-grade celestite ore deposits, with ore grades generally above 85%, far exceeding domestic ores (35-60%), and with low mining costs, it has long been the largest supplier of celestite minerals globally. Given that China's dependence on imported celestite is as high as 78%, with over 60% of the supply coming from Iran, the risk to the celestite supply chain, as the turmoil escalates, cannot be overlooked.

Moreover, if the conflict further spreads to the Bab el-Mandeb Strait, it will further jeopardize the safety of the Red Sea–Suez Canal maritime corridor, a critical shipping route between Asia and Europe. Should vessels divert around the Cape of Good Hope, voyage duration would increase by 10–14 days. Coupled with soaring fuel costs resulting from reduced oil supplies, the cost per container would rise significantly. This will affect the shipment of Chinese automobiles to Europe via this route, as well as the transportation of automotive components between China and Europe.

02Strategic layout, hedge long-term risks

Since the flames of war have already been ignited in this critical region of the world, all industrialized nations, including our own, will inevitably be affected, especially at a time when globalization has not yet receded. This is particularly true for the numerous automotive groups that had previously set ambitious sights on the Middle Eastern market.

However, while facing widespread shocks in the short term, from a strategic perspective, if the conflict turns into a protracted one, it may, to some extent, unexpectedly promote adjustments in the existing industrial system.

Image | Regarding the current Middle East situation, we should not harbor any illusions that it can be resolved in the short term; however, intense hostilities cannot persist for long either.

However, widespread attacks cannot persist for long, and the unique characteristics of the Middle East mean that demand for automobiles will continue to expand steadily and sustainably. If the conflict becomes prolonged and chronic, markets in neighboring countries—except Iran—will gradually become desensitized and adapt. After all, life must go on for everyone.

Once the conflict turns into a prolonged one, developing for more than three months, under the situation of continuous low-intensity attacks without war or peace, the situation will undergo new changes.

For domestic vehicle groups, the current top priority is clearly to assess the situation and, if necessary, suspend shipments to the high-risk areas in the Persian Gulf, and instead prioritize the supply to relatively stable markets such as Europe, Southeast Asia, and Latin America.

Major automobile groups with business operations in the Middle East will seek alternative routes—for instance, transshipping via Salalah Port in Oman followed by overland transport, or unloading at Jeddah Port along the Red Sea coast. Although such alternatives entail higher costs and significantly lower efficiency compared to current practices, they represent a common corporate response to extraordinary price hikes. Prolonged instability will compel China’s automotive supply chain to accelerate efforts to identify alternative sources or promote the domestic production of critical materials; however, the transitional period will inevitably increase manufacturing costs.

From a medium-term perspective, relevant domestic departments are urgently evaluating and expanding diversified supply channels for key materials such as methanol and strontium ore. Russia is currently one of the world's major methanol exporters, and given the significant trade surplus in Sino-Russian trade, a large number of methanol orders could precisely balance the trade. Such changes might even yield unexpected benefits, for example, prompting Russian interest groups to relax various restrictions on the export of Chinese automobiles to Russia, thereby restoring growth in whole vehicle exports to Russia.

Image | Methanol is a good commodity for balancing the trade deficit between China and Russia. The image shows Metafrax, Russia’s largest methanol producer.

Meanwhile, domestic new energy companies should take advantage of the current high oil price window to strengthen the promotion of various hybrid and pure electric models in the Middle East market, striving to turn "crisis" into "opportunity."

Image | On the evening of March 1 local time, a BYD ATTO 3 (Yuan Plus) was struck by an Iranian tactical missile while in motion. The missile exploded adjacent to the vehicle’s rear, blasting a crater 3 meters deep and 7 meters in diameter in the road surface. Nevertheless, the ATTO 3—nearly hit directly—remained structurally intact, and all airbags deployed successfully, saving the lives of the occupants.

With the Persian Gulf’s oil supply cut off, a potential energy crisis would fundamentally enhance the economic advantage of electric vehicles. In particular, China’s distinctive hybrid electric vehicles—capable of functioning as mobile power stations—would demonstrate value far beyond the narrow definition of automobiles, especially against the backdrop of regional conflicts.

In the Middle East, we may soon see reports of family, communication facilities, and even hospitals, schools relying on the power supply function of Chinese new energy vehicles for emergency power. This will not only greatly accelerate the process of electrifying vehicles in oil-producing countries in the Middle East, but also trigger a second wave of global automotive industry's new energy revolution due to the potential energy crisis.

Image: The external speaker function may just be an extra for us, but for areas in turmoil, it could be a lifeline or even save lives!

Some may fear that prolonged chaos will cause them to lose the hard-won market in the Middle East. However, this view fails to grasp the essence of the issue.

In fact, the current situation in the Middle East could cause fundamental damage to the United States and its allies, likely affecting the image and operations of European, American, Japanese, and Korean automotive brands in the region and driving Middle Eastern consumers toward Chinese companies with better reputations.

The Middle East conflict is not only a "stress test" for China's automotive industry going global, but also a catalyst for the restructuring of the global industrial landscape. In the short term, market and supply chain turbulence is inevitable; however, in the long term, high oil prices and supply chain crises will irreversibly strengthen the logic of electric vehicle replacement, and force the global automotive industry chain to shift from "efficiency first" to "safety and resilience first."

At this stage, systemic competition on a global scale has entered a highly intense phase, especially in the automotive industry, which is increasingly expanding to a strategic level. In the end, the competition among companies essentially comes down to strategic perseverance and overall planning to determine the winner. After all, the world is vast and complex, and changes in the situation are a common occurrence. Chinese companies that go global must accelerate their adaptation to these unavoidable issues in global operations.

Only through refinement and restructuring—leveraging its full-industry-chain advantages in the new energy sector, flexible supply chain reconfiguration capabilities, and stronger adaptability to volatile markets—can China’s automobile industry secure its position amid such turbulent times.

Not only to fill the vacuum left by possible withdrawals of European, American, Japanese, and South Korean car manufacturers from the Middle Eastern market, but also to take this as an opportunity, in the global industrial system competition, to transform the first-mover technological advantages into a solid market dominance and rule-setting power, ultimately achieving a historic leap from "market for technology" to "technology for market."