Iran War Energy Shock Threatens Southeast Asia’s Supply Chains

Some exporters at the Canton Fair in Guangzhou report a modest return of orders to China from Southeast Asia, as energy-market volatility linked to the US-Israeli war in Iran prompts some Western buyers to prioritise supply chain stability.

The shift is visible in buyer patterns on the exhibition floor, where the number from Europe and the United States appears to have recovered from last year’s levels, according to Chinese exporters, with more inquiries for home appliances, new energy products and consumer electronics.

The Canton Fair, formally known as the China Import and Export Fair, is widely seen as a bellwether for China’s vast export machine.

The current edition spans a record 1.55 million square metres (16.7 million square feet) and hosts over 32,000 companies, according to organisers. More than 210,000 overseas buyers preregistered by April 2, up 20 per cent year on year.

Liang Qiuyan, overseas market director at Zhixin Electronics, a massage chair exporter, said the shift in buyers was palpable. “From the clients visiting the Canton Fair, we can clearly feel the return of European and US customers”, she said, adding that some were reinforcing their reliance on Chinese supply chains, with “potentially more orders this year”.

The company expects revenue to grow 30 to 40 per cent in 2026, driven mainly by Europe and the United States. Washington’s current tariffs on China have had only a limited impact, she said.

The outlook comes as companies weigh risks in Southeast Asia, a region that has gained manufacturing capacity in recent years as firms pushed to diversify supply chains away from China. But the region now faces energy supply uncertainty and production risks, prompting some Western buyers to reassess their sourcing strategies and move some orders back to the world’s second-largest economy.

In Liang’s view, global uncertainty has underscored the strengths of Chinese manufacturing. “The volatility of the world really shows our ability to respond and the relative stability of the situation,” she said.

A similar pattern is emerging in the new energy sector, where European demand is recovering, according to Chen Jie, an energy storage exporter. “Uncertainty in Middle East oil and gas supply has once again strengthened Europe’s demand for Chinese products such as heat pumps, energy storage systems and wind turbines to fill the natural gas gap,” he said.

And yet the prospects of an unexpected windfall have not translated into broad-based optimism, with sentiment among small and medium-sized enterprises (SMEs) mixed. Thomas Huang, a consumer electronics exporter whose company opened a factory in Cambodia last year to serve US orders, pointed to renewed uncertainty.

“If instability in the Middle East continues, Southeast Asian capacity will definitely be affected. Some US clients are already worried that spring shipments next year may not be delivered on time,” he said.

At the same time, he highlighted the downsides of shifting orders back to China. “In recent years, many Chinese SMEs have already scaled back domestic capacity quite significantly,” he said.

“If orders come back, they need to expand production again, hire workers and stock raw materials, and all of that requires upfront investment.” “But no one knows whether the Middle East crisis will end suddenly, and if it does, these investments become a risk.”

Manufacturers adopting a dual-strategy were also under mounting pressure, according to Huang. “Balancing capacity between Southeast Asia and China without losing money is really a headache for many SMEs,” he said.

Profitability pressures are intensifying, with Huang pointing to thin margins on return orders.

“Raw material costs have risen significantly, but clients remain very strong in negotiations, refusing price increases. Delivery must be on time, with penalties of 1 per cent of contract value per day for delays.” Analysts have broadly echoed the sentiment on the ground at the Canton Fair.

A report by Nomura Securities, released early this month, highlighted the resilience of China’s export sector amid global energy supply shocks, supported by high levels of self-sufficiency and rapid advances in wind, solar and nuclear power.

China’s regulated power system ensured a stable electricity supply for manufacturers, helping exporters maintain production despite volatility, the report’s authors said.

If the energy crisis were to continue into the second half of the year, the country’s exports could even retain a relative advantage over competitors, they added.