China May Trigger Another Global Oil Shock Without Going to War
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Should China resume its pre-war crude oil purchases, global demand could increase sharply, pushing oil prices higher. Countries already grappling with elevated energy costs would then face even stiffer competition for supplies.
By Pranjal Gupta
New Delhi, July 17: The world's economy was thrown into turmoil over crude oil the day Iran officially entered the war against the United States, which made the first move on February 28 by attacking Tehran and killing Iran's Supreme Leader Ayatollah Khamenei within the first 24 hours. In retaliation, Iran stepped up military activity in the Strait of Hormuz. One country that quietly escaped the worst of the resulting oil price shock was China. Had it not been for
Beijing, every other economy heavily dependent on Middle Eastern oil supplies would have suffered an even greater blow.
Over the years, China bought sanctioned oil from its ally Iran and discounted oil from Venezuela, spending years building up its crude reserves. It has been the world's largest importer of crude oil, absorbing 20 per cent of all internationally traded barrels last year, according to the International Energy Agency, Newsweek reported.
When the Iran-US war was at its peak, crude oil prices skyrocketed, forcing vulnerable countries to buy oil at whatever price they could afford to keep their economies running.
China, however, stopped buying crude on the open market and quietly turned to its strategic petroleum reserves. This allowed the country to avoid paying inflated prices while keeping its economy on track.
Preliminary Chinese customs data published on Tuesday revealed that Beijing's oil imports fell 41.3 per cent year on year. In June this year, China imported 29.27 million tonnes of crude oil, the lowest monthly volume since October 2016.
By curtailing its oil purchases during the peak of the war, China also eased pressure on global demand, allowing other oil-importing nations to absorb the price shock more easily. The International Monetary Fund (IMF) said on Wednesday that crude oil "should have become cripplingly expensive."
How Many Years China Could Live Off Its Crude Oil Reserves: "Many"
In the face of global instability, China could rely on its oil reserves for many weeks, months or even years, depending on how much disruption the Middle East war causes, although the amount of readily usable crude is much lower.
China has been drawing down its crude inventories at a rate of around 600,000 to 700,000 barrels a day since May, Emma Li, an analyst at energy tracker Vortexa, told Newsweek.
"Even if the drawdown rate accelerates to 1 million barrels per day, the current 1.2 billion barrels of crude held in above-ground tanks alone would be sufficient to sustain withdrawals for more than three years," Li said.
Problem May Arise If China Re-Enters the Market to Restock
If China resumes buying crude oil at pre-war levels, it could drive global oil prices higher. This would force other countries, already struggling to meet their daily energy needs, to pay even more for oil.
The US-Iran war is flaring up again, with both sides exchanging missiles and drones, making the entire Middle East increasingly vulnerable and pushing oil prices higher once again.
However, several other factors will shape China's future decisions on buying crude oil. First, industry experts believe the global oil and gas trade may never be the same as many economies gradually shift their energy supplies away from fossil fuels and towards renewable sources.
Meanwhile, China's rapid shift to electric vehicles suggests the country is already using less petroleum each year, the International Energy Agency said in 2025, according to the Newsweek report.
A Goldman Sachs report published on Wednesday estimated that China's total crude inventory stands at 1.9 billion barrels, enough to meet domestic demand for 117 days. Any additional oil it purchases now, even in smaller quantities, will only extend that buffer further.
While China can bypass the Strait of Hormuz by sourcing Middle Eastern oil through alternative Saudi and Emirati pipelines, experts believe Beijing is unlikely to rush into buying expensive crude to replenish its depleted stockpiles. Instead, they expect China to wait until global oil prices fall closer to pre-war levels before significantly increasing imports.
