European firms in China rethink supply chains as Iran war drives up costs, survey finds

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Supply disruptions and rising costs linked to Middle East instability are forcing companies to adjust sourcing, production and investment plans

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Alice LiPublished: 6:30pm, 13 May 2026Some European companies operating in China are shifting more production to the country as part of broader supply chain adjustments in response to the US-Israeli war on Iran, according to a new survey by the EU Chamber of Commerce in China.

The flash survey of European companies found that more than a quarter of firms had adjusted their supply chain strategies in China following the Middle East conflict, as higher energy and logistics costs weigh on operations.

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Six in 10 chemicals and petroleum firms had made changes, with 35 per cent of these further onshoring production to China, the survey showed. In the machinery sector, 14 per cent of those making supply chain adjustments were looking to increase local production capacity, according to the report published on Tuesday.

Almost three months after the United States and Israel launched air strikes against Iran, the global economy continues to face heightened uncertainties, particularly as energy supplies remain disrupted in the Strait of Hormuz.

On Tuesday, US President Donald Trump told reporters that Washington and Tehran were “either going to make a deal or they’re going to be decimated”, further fuelling concerns of a protracted conflict.

The survey showed that 81 per cent of European firms in China were struggling to source Middle Eastern inputs, two-thirds reported longer delivery times and high transport costs, while about 66 per cent faced higher energy costs. Nearly a quarter of respondents warned that production stoppages were possible within three to six months if the conflict persisted.

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The automotive sector has been hit hardest in terms of demand, with 62 per cent of surveyed European companies operating in China reporting a decline. Overall, more than three in 10 respondents negatively affected by the conflict reported lower demand.

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