CICC: Oil prices are rising. What to buy, what to sell?

Since the outbreak of the Middle East conflict, global markets have experienced fluctuations, while the A-share market has shown relative resilience.

Since the outbreak of the Middle East conflict on February 28, global asset trends have clearly diverged. As of March 27, Brent crude oil prices have risen by 45.2%, the US dollar index has increased by 2.6%, and the yield on the US 10-year Treasury bond has risen by 47 basis points to 4.44%; COMEX gold has significantly retreated by 15.2%. In the equity markets, major global stock indices, especially in the Asia-Pacific region, have generally faced pressure, with the South Korea Composite Index down 12.9%, the Nikkei 225 down 9.3%, the S&P 500 down 7.4%, and the Hang Seng Index down 6.3%, while the Shanghai Composite Index has pulled back 6.0%, demonstrating relative resilience.

Nearly a month into the conflict, market trading logic has gradually shifted from the expectation of “short-term controllable conflict, rapid risk clearance” to a global “upward inflation” perspective, while also beginning to marginally account for risks of weakening global growth. In previous reports, we reviewed the asset performance following the past 14 significant geopolitical conflicts. The results showed that in the early stage of geopolitical shocks, stock markets often first face emotional shocks and rising risk premiums. This manifests as increased volatility and capital reallocation, with funds tending to shift from equity assets to safe-haven assets. After the emotional shock subsides, market focus will gradually shift to fundamentals and policy lines, with the substantive changes in global supply chains and macro environments due to geopolitical conflicts becoming the dominant logic. Recently, concerns in these two areas have risen: 1) Cost shocks and profit differentiation; China is a typical energy-importing country, and rising energy prices bring direct or indirect cost pressures to most domestic industries. If the impact spreads to global trade, it could similarly affect our export demand. This concern has been echoed with the recent rise in oil prices, gaining increasing attention in the capital markets and impacting subsequent profit assessments in the A-share market, particularly in non-financial sectors; 2) The linkage effect of macro inflation and interest rates. High oil prices drive up inflation expectations, which in turn affect the pace and direction of the Federal Reserve’s monetary policy. If the global liquidity easing cycle ends prematurely, it may suppress equity market performance.

Since the outbreak of the conflict on February 28, the A-share market has primarily focused on two main lines: “defensive safe-haven” and “energy substitution.” As of March 27, the utility, coal, banking, and power equipment sectors have risen against the trend, with utilities and banking being typical defensive sectors. Coal, electricity, batteries, and energy storage have gained support due to the energy substitution logic, while other sectors have faced widespread declines, particularly in non-ferrous metals and defense military industries, which had previously posted significant gains. Notably, the oil and petrochemical and basic chemical sectors, directly related to the oil industry chain, have experienced increased volatility due to short-term news speculation and medium to long-term demand concerns, complicating allocation.

The upward movement in oil prices exerts short-term valuation pressure on the A-share market, with longer-term implications for corporate profitability, presenting both “crisis” and “opportunity.”

Generally speaking, the emotional shocks brought by geopolitical events tend to marginally dull as the event cools down or market attention wanes, and risk appetite may be expected to gradually recover once uncertainties are digested and new expectations are formed; however, the substantial impact of rising energy prices on global supply chains and the macro environment is likely to persist in the medium term. This round of conflict has already disturbed key global energy infrastructure and transportation routes: navigation through the Strait of Hormuz remains limited, oil-producing countries such as Saudi Arabia and Iraq are cutting production, and some LNG facilities in Qatar are temporarily halted, leading to a decline in global refinery utilization rates. Comprehensive views from industry analysts at CICC suggest that even if the conflict eases, the restoration of the global energy supply chain is unlikely to be quick, and hence, oil prices may remain relatively high for an extended period.

From China’s perspective, sectors with high external dependence are significantly affected, especially crude oil varieties. China’s helium, crude oil, and LNG have relatively high external dependence, with a considerable portion of crude oil imported from the Middle East transported through the Strait of Hormuz. Although LNG has a high overall external dependence, the proportion of main imported gas sources passing through the Strait of Hormuz is not high; by 2025, China is expected to import approximately 19.44 million tons from Qatar, accounting for about 7% of the national apparent natural gas consumption. The CICC chemical group has assessed that considering the increase in domestic gas production and the substitution of some coastal power generation gas demand with coal, the impact on China’s natural gas supply is relatively small this time, and the probability of significant fluctuations in domestic prices is relatively low. Additionally, helium and sulfur also exhibit high external dependence, but domestic related resources remain relatively loose in the short term, making the direct impact of this event relatively controllable. In terms of the magnitude of impact and industry chain relevance, the most significant domestic effects are still concentrated in the crude oil sector.

As mentioned earlier, geopolitical conflicts primarily influence the valuation of A-shares in the short term through risk appetite and inflation expectations; in the medium term, what is more concerning is how rising energy and transportation costs are transmitted to corporate profit statements. If the conflict’s duration prolongs, pressure may spread along the supply chain to global trade and inventory cycles, potentially triggering a negative feedback loop of total demand and capacity contraction, further affecting the pace of global energy transition, restructuring of supply chains, and redistribution of export shares. From a medium-term perspective, the latter two transmissions will determine which sectors can achieve profit improvements from the “crisis.”

Logically, oil prices impact corporate profitability through three core paths, presenting both “crisis” and “opportunity”:

1) Cost shocks and profit redistribution within the industry chain. The rise in oil prices will first increase energy, chemical raw materials, and transportation costs, reshaping the profit distribution pattern within the industry chain. The beneficiaries are mainly concentrated in the resource and substitute segments: upstream oil and gas extraction, oil services, and oil transportation directly benefit from price increases, while coal and coal chemical sectors gain support due to improved economic viability of alternatives. Correspondingly, industries that rely heavily on crude oil as a direct raw material or are highly sensitive to fuel and logistics costs will face pressure, including aviation, transportation, certain oil-related chemicals, and energy-intensive manufacturing. The end consumer market is sensitive to price increases, especially in the current environment where demand is weak and supply is strong; the transmission of costs to downstream may not be smooth, and some mid-to-lower stream manufacturing and consumer companies may struggle to pass on the pressure through price increases, passively absorbing the upstream price increases, which may further compress their gross profit margins and overall profitability.

2) Supply substitution and increased export shares. On one hand, the limited supply in the Middle East creates export substitution opportunities for certain domestic industries. For instance, the reduction in Middle Eastern supply and rising natural gas prices are pushing up prices of overseas urea, while sulfur prices are significantly increasing, raising production costs for phosphate fertilizers. The CICC chemical group estimates that if overseas prices for urea, sulfur, and other related commodities remain high, and domestic export policies are marginally relaxed, enterprises with export quotas for urea and phosphate fertilizers are likely to benefit. On the other hand, the rise in overseas energy prices, especially in Europe, may further enhance demand release in areas such as energy storage and grid, allowing globally competitive Chinese companies to secure orders and improve profitability. However, it’s important to note that if high oil prices persist for a long time, the global risk of stagflation may resonate, which could negatively affect China’s foreign trade exports in the long run.

3) The increasing importance of long-term energy security and the reshaping of global competitive dynamics. If high oil prices persist for a long time, global total demand and economic growth may face slowdowns. However, compared to countries like Japan, South Korea, and India, China’s energy structure has lower external dependence, a more complete industry chain system, and faster technological progress, which may enhance relative competitiveness. By 2025, China’s primary energy self-sufficiency rate is expected to reach 84.4%, significantly higher than that of Japan, South Korea, and India. Supported by the resilience of domestic demand and industrial advantages, there is potential for export shares to increase against the trend. At the same time, the rising geopolitical risks further highlight the importance of supply chain security. In the medium to long term, energy security and the autonomy of supply chains may become the main themes, with strategic resources such as oil and gas and rare metals possessing long-term demand rigidity, while penetration rates in areas such as grid equipment, energy storage, and wind power are expected to accelerate, further amplifying China’s competitive advantage in new energy exports.

If the oil price center remains high, it will impact China’s economy and A-share annual profit expectations, warranting attention to possible policy responses.

The conflict between the US, Israel, and Iran has already caused substantial shocks to global crude oil supply. Even if subsequent repairs occur, the supply risk premium may be difficult to fully dissipate, and the oil price center may systematically rise within the year. According to predictions from the CICC commodities team, if the trade through the Strait of Hormuz is interrupted for 3 months, the expected quarterly centers for Brent crude oil prices in 1-4Q26 would be $80, $120, $90, and $80 per barrel, respectively; if the trade interruption lasts for 6 months or more, the expected quarterly centers would be $85, $150, $110, and $90 per barrel, respectively.

Historical experience shows that when oil prices remain above $80 per barrel for an extended period, the ROE and profit margins of A-share non-financial sectors will face certain pressures, necessitating attention to potential policy responses. To illustrate structural differences between industries, we will break down the impact into three channels:

1) Macroeconomic demand drag. Rising oil prices increase inflation and suppress total demand, affecting corporate revenue. Research by the IMF shows that if energy prices continue to rise by 10% within a year, global inflation will rise by approximately 0.4 percentage points, while global economic output will decline by 0.1%-0.2%. Given that China’s refined oil prices are subject to a regulatory mechanism, the direct impact of rising oil prices on domestic macro demand is generally relatively mild.

2) Cost-side squeeze. This is also a core source of medium-term profit differentiation, which can be further divided into two layers. The first layer is cost exposure; rising oil prices do not impact all industries equally, and the key lies in each industry’s dependence on energy, petrochemical raw materials, and transportation links. By analyzing input-output tables, we can roughly estimate the cost proportion of each industry in direct energy input, oil-related chemical raw material input, and logistics transportation input. If necessary, we can also incorporate the crude oil consumption coefficient to identify indirect exposure between supply chains. The higher the cost exposure, the more significant the compression of profit margins due to rising oil prices. The second layer is price transmission, referring to the ability of enterprises to pass rising costs downstream. Even with similar cost exposure, the degree of profit damage can vary significantly between industries: if the industry competition is favorable, or the brand or channel capabilities are strong, enterprises often have a higher ability to pass on costs, resulting in relatively limited profit margin damage. Conversely, if demand is weak, competition is fierce, or contractual constraints are strong, poor cost transmission makes profit margins more susceptible to compression. In other words, what truly determines profit pressure is not only “how much costs have risen” but also “whether costs can be smoothly passed on.”

3) Upstream resource sector profitability enhancement. For resource sectors, if we only consider demand drag and rising costs, we often underestimate their profit elasticity. Rising oil prices typically drive up the prices of crude oil, coal, and some related resource products, thereby boosting revenues and profits for upstream enterprises. Upstream oil and petrochemical sectors, as well as coal industries, often achieve additional profit improvements through price increases, which is a crucial reason for their relative advantage in high oil price environments.

Based on the GDP shock and the cost transmission effects illustrated through input-output tables, structurally, the coal and non-ferrous metal industries are likely to benefit from price increases to achieve profit improvements, while banking, non-banking, pharmaceuticals, biotechnology, computers, and communications are less affected. Conversely, basic chemicals and transportation sectors may simultaneously face pressure from demand declines and rising costs, leading to significant drag on profit growth.

How to allocate at the current moment

Looking ahead, we believe that while there is still uncertainty in the short term, risk appetite is unlikely to fundamentally recover before the situation clarifies. However, the logic supporting “steady progress” in the A-share market remains intact in the medium term. The current A-share market may be at a mid-term low position, with valuations at relatively reasonable levels. If measured by risk premiums, as of March 27, the earnings yield of the CSI 300 Index compared to the 10-year Treasury yield shows an equity risk premium of 5.4%, which is around the median since 2010. The dividend yield of the CSI 300 Index is 2.7%, still offering advantages in equity-bond performance. From a medium-term perspective, the macro environment the market is in has not fundamentally changed, and the release of risks and downward adjustments are expected to bring good allocation opportunities. China’s manufacturing advantages are evident, and current advancements in artificial intelligence are in a phase of new technological iteration and application implementation, with demand for energy and costs increasing exponentially, supporting upstream demand and driving related listed companies to raise prices and improve profitability.

In terms of allocation, we recommend focusing on sectors with high levels of prosperity and strong earnings certainty: 1) Prosperity growth: With rapid iteration of AI technology, focus on high-prosperity areas such as cloud computing infrastructure, optical communication, batteries, energy storage, and semiconductors, and pay attention to applications in intelligent driving and robotics. Additionally, the importance of AI strategic security may further increase. 2) Cyclical price increases: Considering the geopolitical situation and the position of capacity cycles, we recommend focusing on sub-sectors where supply-demand dynamics support price increases and earnings certainty, such as energy, grid, electricity, non-ferrous metals, chemicals, and oil transportation. 3) Low volatility dividends: High dividends may still represent phase-specific, structural opportunities this year, with attention to matching cash flows.

Chart 1: China’s helium, crude oil, and LNG have high external dependence

Note: External dependence = net import volume/apparent consumption volume, where apparent consumption volume = net import volume + production volume, data all for 2025.

Source: Wind, General Administration of Customs, National Bureau of Statistics, Longzhong Information, Zhuochuang Information, CICC Research Department.

Chart 2: Long-term high oil prices may pressure A-share non-financial sector profits

Source: Wind, CICC Research Department.

Chart 3: A-share style index performance since the outbreak of the Middle East conflict

Note: Data as of March 27, 2026.

Source: Wind, CICC Research Department.

Chart 4: A-share style index performance since the beginning of the year

Note: Data as of March 27, 2026.
Source: Wind, CICC Research Department.

Chart 5: A-share sector performance since the outbreak of the Middle East conflict

Note: Data as of March 27, 2026.

Source: Wind, CICC Research Department.

Chart 6: A-share sector performance year-to-date

Note: Data as of March 27, 2026.
Source: Wind, CICC Research Department.

This article is sourced from CICC Insights.

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