Now entering its fourth week with no ceasefire in sight, the U.S.-Israeli military campaign against Iran is far from over. Independent Chinese economist Andy Xie (謝國忠) is blunt about what it will take to change that trajectory.
“The turning point will come when U.S. Treasuries or U.S. equities show a significant decline,” Xie stated in a recent transatlantic interview.
“The pain hasn't been felt enough yet.”
The Ceasefire Trigger: Equities Down 10%, Yields At 4.5%
Xie warned as early as October last year that by 2026, global security would matter far more than economic growth. In January, he accurately predicted that Iran would be drawn into a direct conflict and that the United States would become heavily entangled in Israel's security objectives.
His assessment of the conflict's current trajectory suggests it could run another month before a ceasefire becomes politically possible. Xie noted that since the war began, U.S. 10-year Treasury yields have risen by roughly 20 basis points, and equity markets have slipped only 2% to 3%.
"That's not painful enough. It will take a more significant decline in U.S. stocks or Treasuries before President Donald Trump changes course," Xie argued. He defines a "significant" threshold as the U.S. 10-year Treasury yield rising to 4.5% or cumulative equity losses approaching 10%.
A yield of 4.5% would represent a deeply sensitive psychological threshold for international investors. "I think we could see that level fairly soon," Xie added.
A War Of Attrition Is Unsustainable
Despite the escalating military confrontation, Xie does not believe this war can be sustained for long by either side. Neither the United States nor Israel possesses an adequate stockpile of precision missiles for a prolonged, open-ended bombing campaign against Iran.
"America can't sustain a war of attrition either," Xie noted. He pointed to recent reports indicating that American rare earth reserves, a critical input for advanced missile production, would last only about two months under current consumption rates.
Iran recently put three ceasefire conditions on the table: recognition of its legitimate international rights, compensation for war damages, and security guarantees against future attacks. Xie regards the second and third conditions as nonstarters for Washington but sees room for negotiation on the first.
The United States might offer partial sanctions relief, which could be enough to secure a deal. "Deep down, Iranians are a people who want to compromise," he said, suggesting a modest concession from Trump could open the door to an agreement.
However, Xie stressed that Iran will absolutely not relinquish control of the Strait of Hormuz. Tehran will keep that critical geopolitical leverage regardless of any negotiated ceasefire.
Oil Expected To Hit $150 As Germany Suffers
In the meantime, Xie expects global crude oil prices to surge to $150 per barrel in the second quarter of this year before retreating sharply. Even after a correction, he predicts prices will remain elevated, oscillating around $100 for several months.
With global economic growth likely to fall below 2% due to these energy shocks, the world may already meet the empirical threshold for a recession. Strategic petroleum reserve releases by major governments will have only a psychological effect and cannot drive prices back to $60.
Among major global economies, Xie sees Germany as the most dangerously exposed to this crisis. Unlike France, which generates close to 70% of its electricity from nuclear power, Germany remains heavily dependent on imported oil and natural gas.
Russia, by contrast, stands to gain the most from the current geopolitical alignment. The U.S. is likely to ease sanctions on Russian oil exports, giving Moscow a massive financial windfall and the revenues needed to sustain its operations in Ukraine.
China Converts Currency Surpluses Into Physical Resources
Sustained high oil prices will, in Xie's view, rapidly accelerate the global energy transition. He projects that renewable energy will displace roughly half of the current global oil supply within 20 years, with China positioned as a primary beneficiary.
Chinese exports of solar panels, electric vehicles, and related clean-energy products are set to rise substantially. China's trade surplus already hit a record $1.19 trillion in 2025, and Xie expects that figure to climb even further this year.
The strategic priority for Beijing is to rapidly convert those monetary surpluses into physical reserves by stockpiling oil, minerals, copper, iron, and other raw materials.
"Whatever gets cheaper, China buys in volume and stores it; that's good news for resource-exporting countries," Xie observed.
"The Chinese mindset is to be self-reliant and prepare for every contingency," he explained.
"They don't trust anyone, so they bring these things home and keep them close. Going forward, large amounts of capital will flow toward physical resources."
Dollar Stays Strong While Asian Currencies Slide
On the currency front, Xie expects the U.S. dollar index to remain firm through the second quarter as Middle East tensions persist. The Japanese yen, South Korean won, New Taiwan dollar, and euro are all likely to extend their first-quarter depreciation trends against the dollar.
The renminbi is a partial exception, as China's massive trade surplus leaves little room for depreciation, though Beijing will deliberately slow any appreciation.
"In wartime conditions, China's instinct is to stabilize; the renminbi won't depreciate, but its appreciation will be restrained," Xie said.
For Japan, the government has already been fighting the market to keep the yen from falling below 160 per dollar. With Japan's trade surplus shrinking and the economic costs of tensions with China not yet fully materialized, Xie sees the yen's long-term depreciation trend as unchanged.
South Korea's position is similarly precarious and largely underappreciated by global markets. Korea's competitive industries all face intensifying Chinese competition, compounding longstanding geopolitical frictions, leading Xie to expect the won to depreciate by at least as much as the yen.
Taiwan's currency has held up better than most, buoyed by the artificial intelligence investment boom and a strong equity market. Xie expects further weakening in the second quarter but believes the central bank will strictly limit the decline to protect against oil-import-driven inflation, setting a floor around 32.5.
No Fed Rate Cuts As Yields Head Toward 5%
While the mainstream consensus had anticipated two Federal Reserve rate cuts in the second half of this year, Xie is entirely dismissive.
"Very unlikely. The Fed won't cut this year," he stated bluntly.
High oil prices will keep inflation elevated and force the Federal Reserve to remain highly cautious. He expects U.S. 10-year Treasury yields to reach 4.5% in the near term, with a move toward 5% entirely possible by next year.
On the yield curve, Xie notes that the U.S. government has been shortening the average maturity of its debt issuance to reduce interest costs. The result will be a flattening yield curve, where the 10-year yield rises sharply while longer-dated maturities see more limited increases.
Stepping back, Xie frames the current global disorder as rooted in a broader anxiety over shifting superpower dynamics.
"The core problem is that many people have panicked over China's rise and are now acting irrationally as a result," he said.
China's current strategic posture is one of deliberate restraint, opting to do as little as possible while letting others make geopolitical mistakes. On the surface, Beijing is staying out of the U.S.-Iran conflict, but in practice, China will continue to quietly support Tehran.
An Iranian collapse would be deeply damaging to long-term Chinese interests, Xie believes. He notes that ultimately, allowing the United States to gain undisputed control over global oil flows is a strategic outcome Beijing will actively work to prevent. （Related： Taiwan Unlikely To Be Used As Bargaining Chip In US-China Summits, Expert Says ｜ Latest ）
