China Oil Crunch: How the Iran War Is Testing Beijing's Energy Reserves
China is not running out of oil—but the Iran war is delivering a painful stress test to the world's largest energy importer. As the Strait of Hormuz remains contested, Beijing faces rising costs, inflationary pressure, and a delicate diplomatic balancing act with Washington.
The Supply Squeeze
Before the conflict, China received approximately 5.35 million barrels of oil per day through the Strait of Hormuz. That figure has plummeted to roughly 1.22 million barrels daily, consisting almost exclusively of Iranian crude. The disruption represents about half of China's seaborne oil supply and a sixth of its natural gas imports.
Iran typically accounts for 13% of China's seaborne oil imports. While Chinese refiners have tapped into stockpiles and Iranian crude already in transit, the prolonged closure of the strait is beginning to ripple through the economy.
Strategic Reserves Provide Buffer
Beijing is not facing immediate shortages. China has spent years building strategic petroleum reserves estimated at three months or more between commercial and national stockpiles. The government recently authorized state refiners to tap commercial reserves as the conflict drags on.
According to Kpler crude analyst Johannes Rauball, Iranian crude on water remains plentiful, with days of cover for Chinese refiners hovering around 120 at normal import levels. A potential decline in Iranian exports will not impact availability in the near term.
Rising Costs Hit Home
While supply remains stable, prices are not. Transportation fuel costs rose 10% month-on-month in March, marking the first positive turn in China's factory-gate prices in more than three years. Airlines have increased ticket fees due to surging jet fuel costs.
Analysts warn this represents cost-push inflation rather than organic demand growth. Joe Peissel of Trivium China noted it compresses margins rather than expanding them, squeezing household disposable income without improving consumer confidence.
Diplomatic Tightrope
The economic pressure comes as President Donald Trump was expected to meet with President Xi Jinping in Beijing next month—a summit already postponed amid the conflict. China has offered four proposals for peace in the region while walking a fine line: backing Iran politically while opposing US and Israeli attacks, yet also calling for Gulf state security to be respected.
Chinese-financed infrastructure projects at risk across the Middle East total approximately $6.5 billion, including ports, power plants, refineries, and airport infrastructure across Qatar, Oman, UAE, Saudi Arabia, Iran, and Israel. March trade data shows China's commerce with the Middle East shifted from year-on-year growth to decline.
What Comes Next
If the conflict extends further and inventories draw down significantly, teapot refiners on China's coast could reduce gasoline and diesel production. Beijing would likely respond with policy support—securing alternative crude supplies or incentivizing refinery runs—to maintain stable domestic supply.
For now, China's preparation is paying off. But as global fuel price hikes continue to ripple through the world's second-largest economy, the stakes of the Iran war keep rising for Beijing.
Sources: CNN, Foreign Policy, Kpler, Rystad Energy, Trivium China
