China's Oil Stockpile Blunts Price Shock From Iran War
China's massive oil reserves and reduced imports have softened global price shocks from the Iran war, easing pressure on the US and Europe.
When the United States launched its war against Iran in late February, energy analysts warned that oil prices could more than double in a prolonged conflict. Six months on, the war continues with no clear end, and prices remain volatile — but the most extreme forecasts have not materialised.
A key reason, analysts say, is China. Beijing spent years and billions of dollars building the world's largest oil stockpile, with its strategic reserve estimated at about 1.4 billion barrels by the end of last year, according to U.S. Energy Information Administration figures. Energy self-reliance was also made part of the country's latest five-year plan.
Drawing on those reserves allowed China, the world's second-biggest oil consumer and Iran's top buyer, to sharply cut crude imports after the U.S. and Israel began their bombardment and Tehran effectively closed the Strait of Hormuz. A shift toward electric vehicles and other energy alternatives added to the buffer.
China's crude imports averaged just 8.1 million barrels per day in the second quarter — nearly 4 million barrels per day, or 32%, lower than in the first three months of the year, according to U.S. data. That drop eased global demand and softened upward pressure on prices for the United States, Europe and beyond.
"The Chinese deserve credit," said retired U.S. Navy Rear Adm. Mark Montgomery, an analyst at the Foundation for Defense of Democracies. He said China did in 10 years what took the U.S. 25 years after the 1973 oil crisis: build a strategic petroleum reserve capable of weathering such a shock.
Rosemary Kelanic, director of the Middle East program at the Washington think tank Defense Priorities, described the situation as the world "free-riding off Beijing in a weird way," noting that China acts because a global economic hit from high oil prices would hurt it too.
Brent crude averaged about $69 per barrel last year and is currently hovering around $100, having briefly peaked at $126 in late April. Bank of America analysts last week forecast $83 a barrel for the second half of the year, citing persistent disruptions to Hormuz, but warned prices could reach $95 to $120 if violence escalates, with spikes up to $150 if major energy infrastructure is damaged.
New challenges are emerging. Attacks by Iran-backed militias this month led Saudi Arabia to temporarily shut a pipeline carrying crude across the kingdom to Red Sea ports. Yemen-based Houthis have seized two strategic islands in the southern Red Sea, boosting their ability to disrupt a key shipping route. Planned Gulf talks on reopening the Strait of Hormuz have been put on hold.
Before meeting Chinese President Xi Jinping, who visits Washington next week, President Donald Trump is set to meet Gulf Cooperation Council leaders in New York on the sidelines of the UN General Assembly. The group includes Saudi Arabia, the United Arab Emirates, Qatar, Oman, Kuwait and Bahrain.
The war and its economic impact are expected to be on the agenda for the Trump-Xi talks, though prospects for a breakthrough appear dim. Washington has faced resistance in urging Beijing to use its economic leverage to press Iran to end the war and reopen the strait, and Chinese officials have bristled at threats to increase pressure on nations still doing business with Iran.
Analysts say China's stockpiling was driven less by altruism than by contingency planning, including for potential military action over Taiwan. Tapping the reserves now is far from ideal for Beijing, but so would skyrocketing global oil prices.
The White House did not respond to questions on whether Trump credits China's actions with helping keep oil prices from hitting worst-case levels. But energy analysts credit Beijing's slashing of imports as having the single greatest impact on moderating prices since the war began.
"It's remarkable how China managed the market," said Michael Lynch, president of Strategic Energy and Economic Research. "They didn't panic and by turning to their inventories they kept the price down for everybody."