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

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CICC Insight

Since the outbreak of the Middle East conflict, global markets have been volatile and adjusted; A-shares have shown relatively strong resilience

Since the outbreak of the Middle East conflict on February 28, the performance of major global asset classes has clearly diverged. As of March 27, Brent crude oil prices were up 45.2% cumulatively, the U.S. Dollar Index rose 2.6%, and the yield on the U.S. 10-year Treasury notes increased by 47 basis points to 4.44%; COMEX gold saw a sharp pullback of 15.2%. In equities, major global stock indices, especially in the Asia-Pacific region, have generally come under pressure: South Korea’s composite index fell 12.9%, Japan’s Nikkei 225 fell 9.3%, the S&P 500 and the Hang Seng Index fell 7.4% and 6.3% respectively, and the Shanghai Composite Index retreated 6.0%, showing relatively stronger resilience.

Nearly a month has passed since the outbreak of the conflict, and the market’s trading logic has gradually shifted from the expectation of “conflict risk being short-term controllable and risk clearing quickly” to global “inflation rising,” and has begun to marginally price in the risk of global growth weakening. In our report, “How Will the Situation in Iran Affect China’s Assets?”, we reviewed the asset performance after 14 major geopolitical conflicts in the past. The results show that at the initial stage of a geopolitical shock, stock markets often first face an impact on sentiment and an increase in risk premia. This manifests as higher volatility and funds being reallocated, with capital tending to move from equity assets toward safe-haven assets. After the sentiment shock fades, the market focus will gradually shift toward fundamentals and the policy main line, and the real changes to global industrial chains and the macro environment caused by geopolitical conflicts will become the dominant logic. In the recent period, concerns in both of these areas have been rising in the market: 1) cost shocks and profit divergence. China is a typical energy-importing country; higher energy prices bring direct or indirect cost pressure to most domestic industries. If this impact continues to spread into global trade, it could also affect our export demand. As this concern has accompanied crude oil prices climbing to highs, attention has been rising recently. Mapped to the capital markets, it affects subsequent profit assumptions for A-shares, especially non-financial sectors; 2) the linkage effects between macro inflation and interest rates. Higher oil prices raise inflation expectations, which in turn affect the timing and direction of the Federal Reserve’s monetary policy. If the global liquidity easing cycle ends earlier, it will likely suppress equity market performance.

By industry, since the outbreak of the conflict on February 28, China’s A-share market has mainly revolved around two main lines: “defensive hedging” and “energy substitution.” As of March 27, the public utilities, coal, banking, and power equipment sectors all closed higher against the trend. Among them, public utilities and banks are typical defensive sectors. Coal, power, batteries, energy storage, and so on benefit from the energy substitution logic and received support. The other sectors saw broad declines, especially those that had accumulated larger gains earlier, such as non-ferrous metals and defense and military industry. It is worth noting that the oil refining and petrochemical and basic chemical sectors, which are directly related to the crude oil industry chain, saw increased volatility under the influence of short-term news-driven back-and-forth as well as longer-term demand concerns, raising the difficulty of allocation.

When oil prices rise, A-shares show valuation pressure in the short term; in the medium term, it is corporate earnings—“there is opportunity within risk”

Generally speaking, sentiment shocks brought by geopolitical events tend to become gradually dull at the margin as the event cools off or market attention declines, and risk appetite is also likely to show signs of recovery after uncertainty is progressively absorbed and new expectations form. However, the real medium-term impact of higher energy prices on the global supply chain and macro environment usually persists. This round of conflict has already created disruptions to global key energy infrastructure and transportation corridors: continued restrictions on navigation through the Strait of Hormuz, production cuts by oil-producing countries such as Saudi Arabia and Iraq, some LNG facilities in Qatar being shut down, and a decline in global refinery utilization rates. Based on the combined views of CICC industry analysts, even if the conflict eases later, it will be difficult to repair global energy supply chains quickly. As a result, the oil price mid-point may remain relatively high for a prolonged period.

Looking at China’s situation, the related areas with higher external dependency are more affected—especially crude oil varieties. China’s helium, crude oil, LNG, and other varieties have high external dependency. A substantial portion of crude oil imported from the Middle East is transported via the Strait of Hormuz. Although LNG’s external dependency is also relatively high overall, the share of its main imported gas source that transits through the Strait of Hormuz is not high. In 2025, China imported about 19.44 million tons of LNG from Qatar, accounting for about 7% of the country’s apparent natural gas consumption. The CICC chemical group judges[1] that, considering an increase in domestically produced gas and that some natural-gas demand for coastal power generation can be substituted by coal, China’s natural gas supply will face relatively less impact in this shock, and the probability of large-scale domestic price volatility is relatively low. In addition, helium, sulfur, and other varieties also have relatively high external dependency, but the relevant domestic resources are still in a relatively loose position in the short term, making the direct impact from this event relatively controllable. Given the overall degree of impact and industrial chain linkage, the domestic impact that stands out the most is still concentrated in the crude oil segment.

As mentioned earlier, geopolitical conflicts affect A-shares valuations in the short term mainly through risk appetite and inflation expectations. In the medium term, what is more worth focusing on is how rising energy and transportation costs transmit to companies’ profit-and-loss statements; if the conflict’s duration further lengthens, the pressure may spread along the industrial chain into global trade and the inventory cycle, potentially triggering negative feedback from contraction in total demand and capacity, which in turn could affect the pace of global energy transition, industrial chain reshaping, and the reallocation of export shares. Under a medium-term perspective, the latter two transmission layers will determine which industries can obtain profit improvement from “crisis.”

From a logical standpoint, oil prices affect corporate earnings through three core pathways—“there is opportunity within risk”:

1）Cost shocks and profit reallocation within the industrial chain. Rising oil prices will first raise energy, chemical raw material, and transportation costs, reshaping the internal profit distribution pattern of the industrial chain. The beneficiary side is mainly concentrated in the resource and substitute segments: upstream oil and gas extraction, and oilfield services and oil transport directly benefit from price increases; coal and coal-chemical industries are supported by improved substitutability economics. Correspondingly, industries that use crude oil as a direct raw material or are highly sensitive to fuel and logistics costs will face pressure, including aviation, transportation, some oil-head chemical industries, and high-energy-consuming manufacturing, among others. Terminal consumer markets are relatively sensitive to price increases. Especially under the current environment of relatively soft demand and strong supply, cost transmission to downstream may not be smooth. Some midstream and downstream manufacturing and consumer enterprises may find it difficult to pass the pressure through higher product prices, thus passively absorbing upstream cost increases, which in turn compresses their gross margin and overall profit space.

2）Supply substitution and increased export shares. On the one hand, supply in the Middle East is constrained, creating export substitution windows for certain domestic industries. For example, reductions in Middle East supply and higher natural gas prices can push up overseas prices of urea; a sharp increase in sulfur prices raises the production costs of phosphate fertilizers. The CICC chemical group expects[2] that if overseas urea and sulfur-related commodity prices remain at high levels while domestic export policies are marginally loosened, companies holding export quotas for urea, phosphate fertilizers, and so on may benefit. On the other hand, higher overseas energy prices—especially rising European natural gas prices—may further strengthen demand release in energy storage, power grids, and other areas. Chinese companies with global competitiveness are likely to win orders and improve profitability. However, it is important to note that if the period of high oil prices is prolonged, global stagflation risk could resonate, and in the long run China’s foreign trade exports may also be affected.

3）Greater importance of long-term energy security and a reshaping of the global competitive landscape. If high oil prices persist for a long time, global total demand and economic growth may face further slowdown. Yet compared with countries such as Japan, South Korea, and India, China has lower external dependency in its energy structure, a more complete industrial chain system, and faster technological progress—so relative competitiveness may improve. In 2025, China’s self-sufficiency rate of primary energy reached 84.4%, significantly higher than Japan, South Korea, and India. Supported by the resilience of domestic demand and industrial advantages, there is a possibility that export shares may rise against the trend. At the same time, rising geopolitical risks further highlights the importance of industrial chain security. In the medium to long term, energy security and independently controllable industrial chains may become the main line. Strategic resources such as oil and gas and rare metals have long-term demand rigidity. The penetration rates in areas such as power grid equipment, energy storage, and wind power are expected to accelerate, further magnifying China’s competitive advantage in renewable energy exports.

If the oil price mid-point remains high, it will affect China’s economy and its A-share full-year earnings outlook; watch for possible policy responses

The U.S.-Iran conflict has already formed a material shock to global crude oil supply. Even if there is some subsequent repair, the supply risk premium may be hard to fully eliminate, and the oil price mid-point this year may be systematically raised. According to CICC commodities team forecasts[3], if trade disruption through the Strait of Hormuz lasts 3 months, the oil price mid-points for Brent in 1Q-4Q26 are expected to be 80, 120, 90, and 80 U.S. dollars per barrel respectively. If the disruption lasts 6 months or more, the mid-points for Brent in 1Q-4Q26 are expected to be 85, 150, 110, and 90 U.S. dollars per barrel respectively.

Historical experience shows that when oil prices remain above 80 U.S. dollars per barrel for a sustained period, the ROE and profit margins of non-financial sectors in A-shares will face certain pressure, so watch for possible subsequent policy responses. To depict industry-level structural differences, we break the shock into three transmission channels: 1）Macroeconomic demand drag. Rising oil prices raise inflation and suppress total demand, affecting the revenue side of companies. IMF research shows[4] that if energy prices continue to rise by 10% within a year, it will push global inflation up by about 0.4 percentage points and also cause global economic output to decline by 0.1%-0.2%. Because China implements a regulated pricing mechanism for refined oil products, the direct macro-demand shock from oil price increases is generally relatively mild. 2）Cost-side squeeze. This is also the core source of profit divergence in the medium term, and can be further divided into two layers. First is cost exposure. Rising oil prices do not hit all industries with the same magnitude of impact; the key lies in how dependent each industry is on energy, petrochemical raw materials, and transportation. Based on input-output tables, we can roughly estimate cost shares in each industry related to direct energy inputs, “oil-head” chemical raw material inputs, and logistics transportation inputs, and if necessary, use the crude oil fully consumed coefficient to identify indirect exposure across the industrial chain. The higher the cost exposure, the more pronounced the compression of profit margins when oil prices rise. Second is price pass-through—i.e., a company’s ability to shift rising costs to downstream. Even if cost exposure is similar, the degree of earnings impairment across industries may differ significantly: if an industry’s competitive landscape is relatively favorable and companies have stronger brand or channel capabilities, they often have higher ability to pass through price increases, and profit margin damage is relatively limited; conversely, if demand is weak, competition is intense, or contract constraints are strong, cost pass-through may be difficult, making profit margins more likely to be compressed. In other words, what truly determines earnings pressure is not only “how much costs rise,” but also whether “costs can be passed through smoothly.” 3）Thicker earnings for upstream resource products. For resource-product industries, if we consider only demand drag and cost increases, it often leads to an underestimation of their earnings elasticity. Rising oil prices usually lift the prices of crude oil, coal, and some related resource products, thereby increasing upstream companies’ revenue and profits. Oil refining and petrochemical upstream industries, as well as coal-related industries, often can obtain additional profit improvements through product price increases—this is also an important reason they are relatively advantaged in a high-oil-price environment.

We base on GDP shock and the cost pass-through effect in the input-output tables. Structurally, coal and non-ferrous metals industries are expected to benefit from price increases and obtain profit improvements. Industries such as banks, non-bank financials, pharmaceuticals and biotech, computers, communications, and so on are expected to be less affected. Basic chemical and transportation industries may be constrained by both demand declines and cost increases at the same time, and their earnings growth rates may face significant drag.

How to allocate at the current point in time

Looking ahead, we believe that while there is still uncertainty in the short term and until the situation becomes clearer, risk appetite is unlikely to rebound in any fundamental way, the logic that supports an “orderly advance” for the A-share market in the medium term still holds. At present, the A-share market may be positioned relatively low in the medium term, and valuations are at a relatively reasonable level. If measured by the risk premium, as of March 27, the equity risk premium of the CSI 300 Index’s earnings yield versus the yield on the 10-year Treasury notes is 5.4%, which is around the middle range since 2010. The CSI 300 Index’s dividend yield is 2.7%, meaning the stock-bond valuation attractiveness still has an advantage. From the medium-term perspective, the macro environment in which the market is located has not undergone fundamental change. Risk release and pullback corrections are expected to bring better allocation opportunities. China’s manufacturing advantages are clear. At present, artificial intelligence is in a stage of new technology iteration and application deployment. New model training shows exponential growth in demand for energy and costs, supporting upstream demand and driving related listed companies to raise product prices and improve earnings.

In terms of allocation, we recommend focusing on main lines with higher levels of prosperity and stronger earnings certainty: 1）Prosperous growth: AI technology is iterating quickly; focus on highly prosperous segments such as cloud computing infrastructure, optical communications, batteries, energy storage, semiconductors, and so on. On the application side, focus on intelligent driving, robots, and the like. In addition, the importance of AI strategic security may further increase. 2）Cyclicality and price increases: considering the geopolitical situation and the position of the capacity cycle, we recommend focusing on sub-sectors where the demand-supply pattern supports price increases and where earnings certainty is strong, such as energy, power grids, electricity, non-ferrous metals, chemicals, oil shipping, and so on. 3）Low-volatility dividends: high dividends may still be a phased and structural opportunity this year; focus on those with a good match with cash flows.

Table 1: China’s helium, crude oil, and LNG have higher external dependency

Note: External dependency = net import volume / apparent consumption volume. Apparent consumption volume = net import volume + production volume. All data are for 2025.

Source: Wind, General Administration of Customs, National Bureau of Statistics, Lange Zhong Information, and STARTUP (ZhuoChuang) Information, Research Department of CICC

Table 2: Oil prices stay at high levels for the long term, or bring pressure to earnings of non-financial sectors in A-shares

Source: Wind, Research Department of CICC

Table 3: Performance of A-share style indices since the outbreak of the Middle East conflict

Note: Data as of March 27, 2026

Source: Wind, Research Department of CICC

Table 4: Performance of A-share style indices since the beginning of the year

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

Table 5: Performance of A-share industry indices since the outbreak of the Middle East conflict

Note: Data as of March 27, 2026

Source: Wind, Research Department of CICC

Table 6: Performance of A-share industry indices from the beginning of the year to date

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

[1]https：//www.research.cicc.com/zh_CN/report？id=386158&entrance_source=Team-ReportList

[2]https：//www.research.cicc.com/zh_CN/report？id=386158&entrance_source=Team-ReportList

[3]https：//www.research.cicc.com/zh_CN/report？id=386039&entrance_source=Team-ReportList

[4]https：//www.bloomberg.com/news/articles/2026-03-06/imf-says-ready-to-help-economies-squeezed-by-mideast-oil-shock

This article is excerpted from: “Oil prices are rising—what to buy, what to sell?” published on March 29, 2026

Li Qiūsu Analyst SAC practitioner license no.: S0080513070004 SFC CE Ref：BDO991

Wei Dong Analyst SAC practitioner license no.: S0080523070023 SFC CE Ref：BSV154

Chen Shiyuan Contact SAC practitioner license no.: S0080125070053

Huang Kaisong Analyst SAC practitioner license no.: S0080521070010 SFC CE Ref：BRQ876

Li Jin Analyst SAC practitioner license no.: S0080520120005 SFC CE Ref：BTM851

Liu Xinyì Analyst SAC practitioner license no.: S0080525060006

Zhang Xinyu Contact SAC practitioner license no.: S0080124070034

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Responsible editor: Ling Chen