Why China can withstand oil’s surge past $100 more easily than other countries

BEIJING — Surging oil costs following the Iran warfare are anticipated to affect China lower than in previous years because the nation has constructed massive crude stockpiles and diversified its power sources, together with renewables.

As oil costs climbed previous $100 a barrel for the primary time in 4 years, OCBC analysts stated China could also be “much less delicate to a chronic closure of the Strait of Hormuz than lots of its Asian friends.”

“China has accrued one of many world’s largest strategic and business crude reserves,” the analysts stated, including that its “speedy transition towards electrical autos and renewable power gives an extra structural hedge.”

China held an estimated 1.2 billion barrels of onshore crude stockpiles as of January.

That is about 3 to 4 months of reserves, which can delay the financial affect, Rush Doshi, director of the China Technique Initiative on the Council on Overseas Relations, stated Monday on CNBC’s “Squawk Field Asia.”

“China has taken the final 20 years to scale back a few of its dependence on maritime oil flows,” Doshi stated, noting that new overland oil pipelines and a few diversification to renewables imply the nation now solely depends on the Strait of Hormuz for about 40% to 50% of its seaborne oil imports.

By 2030, China goals to extend the share of non-fossil fuels in whole power consumption to 25%, up from 21.7% in 2025.

The strait connects the Persian Gulf to the Arabian Sea and international delivery routes. It is a slender passage with Iran to the north and Oman and the United Arab Emirates to the south. About 31% of the world’s seaborne oil flows handed by way of the Strait of Hormuz final yr, or round 13 million barrels a day of crude, in line with Kpler.

Nonetheless, oil shipments by way of the strait account for under 6.6% of China’s total power consumption, in line with Nomura’s chief China economist Ting Lu.

Pure gasoline imports by way of the route account for an additional 0.6%, he stated.

The shift displays twenty years of strategic transition, giving China a singular place in international power markets.

The U.S. is the world’s largest client of oil, adopted by China and India, in line with the Group of the Petroleum Exporting International locations (OPEC), which was based in 1960 to coordinate international oil provide.

However China is the most important crude importer, shopping for almost twice as a lot because the U.S., whereas India ranks third, OPEC knowledge confirmed.

Of the three, India is probably the most depending on petroleum imports, accounting for one-fourth of its whole consumption, in line with CNBC’s evaluation of U.S. Power Data Administration knowledge for 2023.

China was decrease at 14%, whereas the U.S. produced most of its petroleum wants, in line with the 2023 knowledge, which incorporates “different liquids” within the petroleum class.

Whereas the U.S. has ramped up home oil manufacturing over the previous decade, China has quickly diversified its power sources.

Renewables, excluding nuclear energy and hydropower, accounted for 1.2% of China’s whole power consumption in 2023, up from 0.2% twenty years earlier, in line with CNBC calculations primarily based on Worldwide Power Company knowledge.

India and the U.S. recorded a far decrease share of renewables in 2023, at 0.2% every.

That is a tiny determine for now. However the rising share of renewables in China’s power combine has international implications.

China’s electrical car push, particularly in vehicles, has already displaced over 1 million barrels per day of implied oil demand, Rhodium Group stated in July 2025.

The analysis agency anticipated that determine to rise by round 600,000 barrels per day over the next 12 months.

Greater than half of China’s new passenger autos offered at the moment are new-energy autos, that means they rely extra on batteries than on gasoline.

“With highway gasoline demand already displaying indicators of peaking and renewable capability increasing quickly, China’s sensitivity to grease worth fluctuations is declining on a [year-on-year] foundation,” the OCBC analysts stated.

“Over time, the electrification of transportation and the enlargement of renewable energy era will additional insulate the economic system from oil-related shocks.”

Oil and pure gasoline solely account for 4% of China’s energy combine, far decrease than the 40% to 50% share seen in lots of Asian economies, the analysts stated.

Electrical energy, largely generated from coal and a rising quantity of renewables, now accounts for a rising share of China’s whole power consumption, in line with power assume tank Ember.

Renewables supplied about 80% of China’s new electrical energy demand in 2024, Ember stated.

However coal stays a major, albeit stagnating, supply of power within the nation. China was the world’s largest producer and client of coal in 2023, regardless of efforts to scale back carbon emissions.

U.S. sanctions on Iran have additionally made China one of many few consumers of Tehran’s oil.

Iran accounted for about 20% of China’s oil imports, although a lot of that quantity may largely get replaced by elevated oil imports from Russia, stated Ano Kuhanathan, Head of Company Analysis at Allianz Commerce.

The bigger threat lies within the roughly 5 million barrels per day of oil China imports from different Center Japanese international locations by way of the Strait of Hormuz, Kuhanathan stated.

Because the Iran warfare enters its second week, it stays unclear when the battle will finish.

“A shock like this is able to seemingly reinforce the path China is already taking fairly than change it,” stated Muyi Yang, senior power analyst, Asia, at Ember.

“It highlights the dangers of relying closely on imported oil and gasoline. And that is why the transition shouldn’t be solely about constructing extra wind and photo voltaic, but additionally about economy-wide decarbonisation,” she stated.

Nonetheless, change would not occur simply. The nation’s fossil gasoline business is dominated by China’s state-owned companies, which are typically much less dynamic than their private-sector friends.

China might also proceed constructing crude reserves.

The U.S. Power Data Administration stated in February it expects China to develop strategic stockpiles by round 1 million barrels a day in 2026.

China’s crude oil imports dropped by almost 2% in 2024, in line with Wind Data. However as Center East tensions began to simmer final yr, China’s crude imports climbed 4.6% to a document of round 580 million metric tons.

“China is materially uncovered however extra versatile,” Kpler’s principal perception analyst Go Katayama beforehand instructed CNBC.

— CNBC’s Sam Meredith, Ying Shan Lee and Penny Chen contributed to this report.