Scenario: "When the Chinese shock absorber breaks”

• Starting parameters (real values, Q1 2026)

China imports 5.4 million barrels per day through Hormuz^¹, and imports through the strait fell to around 222,000 barrels per day in April^²-a collapse of over 95%. Government debt stood at 68.5% of GDP in 2025, with a Moody's projection toward 82.4% in 2027^³.

As of March 2, 2026, China had approximately 1.39 billion barrels of oil in storage, equivalent to about 120 days of net crude imports, according to the Columbia Center on Global Energy Policy, citing Kayrros^⁴.

Today is day 62 of the conflict.

The April 8 ceasefire is fragile, and negotiations are stalled precisely over the issue of the Strait of Hormuz⁵.

• Breaking mechanism

If the blockade becomes persistent, the transmission chain looks as follows: expensive energy generates inflation in industrial inputs, margins compress, profits decline, fiscal revenues fall, the budget deficit rises, the government issues additional bonds, domestic absorption becomes overstretched, yields rise, the average cost of debt exceeds the nominal growth rate, and debt dynamics move out of the "strained but manageable” zone.

The critical numerical threshold is the relationship between nominal growth and the cost of financing. Current values provide a safety margin of about 4 percentage points-nominal growth of 7-8% versus an average debt cost of 3-3.5%.

The margin breaks when expensive energy reduces growth by 1.5-2 points, input inflation raises yields by 0.5-1 point, and additional issuance adds another 0.5-1 point.

At that moment, g ≈ r.

It is not yet a crisis, but Moody's can no longer justify a "stable” outlook. Standard models estimate a reduction of 0.5% of GDP for a 25% increase in oil prices, and the price has edged toward $100 per barrel⁶.

Scenario A - Transitory shock (Moody's baseline)

The ceasefire consolidates in May-June 2026. Hormuz gradually reopens. Strategic reserves absorb the shock without massive emergency issuance. Q2 growth falls to 4-4.5% but returns toward 5% in Q3. Sovereign yields remain below 4%. Debt rises toward 75% of GDP, not 82%. Testable prediction: Moody's maintains a stable outlook at the October 2026 review, and Fitch does not implement an additional downgrade.

Scenario B - Prolonged shock (shock absorber breaks)

Negotiations fail in May.

Hormuz remains effectively closed until August. Strategic reserves fall below 60% of capacity. The government launches emergency stimulus packages financed through bonds, in addition to the already announced plan. Q2 growth drops to 3-3.5%, industrial input inflation rises to 5-6%, 10-year bond yields exceed 4.5%, the budget deficit reaches 10-11% of GDP versus a target of around 4%, and public debt reaches 80% of GDP before year-end.

Testable prediction: Moody's revises the outlook back to "negative” in Q3 or Q4 2026, with a possible actual downgrade from A1 to A2 in the first half of 2027.

Scenario C - Asymmetric stress (most likely according to Interest Rate Theory)

Hormuz partially reopens in May-June, but at reduced capacity and with permanently elevated maritime risk premiums.

China structurally redirects imports toward Russia and Africa, with higher costs and lower crude quality compared to Gulf oil.

Competition for Russian crude between China and India has already intensified, with both countries securing around 1.6 million barrels per day from Russia in April⁷.

The effect is not an acute shock but a slow degradation of industrial competitiveness-invisible in quarterly data, but accumulated over 2-3 years.

This is the scenario best anticipated by Interest Rate Theory: not a sudden liquidity crisis, but a gradual erosion of the g − r differential. Testable predictions are staggered: by Q4 2026, apparently stable growth around 4.5-5%, no visible crisis; by Q2 2027, sovereign yields exceed 4.2% and CDS spreads on China rise by 30-40 basis points from current levels; by 2028, Moody's revises downward, citing not the Iranian shock, but the structural deterioration of debt sustainability-exactly what it already warned about in April 2026.

• Variables to monitor

Three real-time observable indicators can discriminate between these scenarios before official data confirms it.

The first is the duration of the effective closure of Hormuz: each additional week beyond day 90 shifts probability from Scenario A toward B or C.

The second is the yield on Chinese 10-year bonds: if it exceeds 4% and remains there, transmission into the cost of debt has begun.

The third is the budget deficit reported in Q2: if it exceeds 8% of annualized GDP, emergency issuance has exceeded domestic absorption capacity without pressure on yields. ⁸