Wall Street investment banks are reassessing their forecasts for China’s economic trajectory in the wake of escalating tensions in the Middle East, particularly the ongoing conflict involving Iran. Several firms have revised their inflation projections upward and delayed expectations for further interest rate cuts from the People’s Bank of China, according to reports surfacing Monday.
The shift in outlook stems from a surge in crude oil prices, driven by fears of supply disruptions as the U.S. Continues military operations in the region. Brent crude has risen more than 50% since the start of the conflict, impacting global energy markets and raising concerns about inflationary pressures in China, a major oil importer. Bloomberg News reported on the revised forecasts, noting the banks’ concerns about a potential shift from deflation to “bad inflation.”
The timing of these revisions coincides with growing political pressure on U.S. President Donald Trump to de-escalate the conflict with Iran. According to a report by CNBC, Wall Street anticipates Trump may seek a swift resolution to the war as his approval ratings decline and the November midterm elections approach. Yardeni Research president Ed Yardeni told clients Friday that a prolonged war could jeopardize Republican majorities in Congress.
Polling data reflects a growing public skepticism towards the war. A Politico poll released Friday indicated that 43% of Americans support the military action, while a Quinnipiac University poll showed 53% opposition. Deutsche Bank’s Maximilian Uleer suggested that these numbers incentivize Trump to declare a near-term “victory” in the conflict, citing higher rates, increased gasoline prices, and limited public support as factors weighing on Republican electoral prospects. Prediction markets are also reflecting a shift, with odds of Democratic control of the House increasing to around 80% and the Senate to 50%, according to Kalshi.
Beyond the immediate political ramifications, the conflict is also impacting financial institutions’ risk assessments. Reuters reported earlier this month that Wall Street firms are increasingly relying on briefings from former military and national security experts to navigate the complexities of the situation, focusing on issues such as Iran’s stockpile of mines and potential disruptions to shipping lanes.
China’s role in mitigating the economic impact on Iran is also coming under scrutiny. MSN and the Foundation for Defense of Democracies (FDD) have reported on China’s longstanding support for Iran, including a covert payment architecture involving Sinosure and Chuxin that facilitates billions of dollars in oil purchases outside the U.S.-led financial system. This support allows Iran to circumvent international sanctions and maintain economic stability despite ongoing isolation.
Bank of America investment strategist Michael Hartnett noted that Trump’s declining economic performance in polling data provides a “big incentive” for de-escalation. Still, as of Monday, the White House has not signaled any immediate plans to alter its military strategy, and no further diplomatic talks have been publicly scheduled.
