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

BEIJING — Rising oil prices following the Iran war are expected to impact China less than in previous years as the country builds large crude stocks and diversifies its energy sources, including renewables.

As oil prices rose above $100 a barrel for the first time in four years, OCBC analysts said China “may be less sensitive to a prolonged closure of the Strait of Hormuz than many of its Asian peers.”

“China has accumulated one of the world’s largest strategic and commercial crude oil reserves,” analysts said, adding that its “rapid transition to electric vehicles and renewable energy provides additional structural protection.”

China held a meeting estimated 1.2 billion barrels Onshore crude oil stocks as of January.

That translates to about 3 to 4 months of reserves, which would delay the economic impact, Rush Doshi, director of the China Strategy Initiative at the Council on Foreign Relations, said Monday on CNBC’s “Squawk Box Asia.”

“China has somewhat reduced its reliance on seaborne oil flows over the past 20 years,” Doshi said, noting that new onshore oil pipelines and some diversification into renewables mean the country now relies solely on the Strait of Hormuz for about 40% to 50% of its seaborne oil imports.

China aims to increase the share of non-fossil fuels in total energy consumption from 21.7% in 2025 to 25% by 2030.

The Bosphorus connects the Persian Gulf to the Arabian Sea and global shipping lanes. It is a narrow passage with Iran to the north, Oman and the United Arab Emirates to the south. Last year, about 31% of the world’s seaborne oil flow passed through the Strait of Hormuz, or about 13 million barrels per day, according to Kpler.

However, according to Ting Lu, Nomura’s chief China economist, oil shipments through the strait account for only 6.6% of China’s total energy consumption.

He said that natural gas imports via the route constitute a share of 0.6%.

This shift reflects a two-decade strategic transition that has given China a unique position in global energy markets.

USA world’s largest oil consumerIt follows China and India according to the Organization of Petroleum Exporting Countries (OPEC), which was established in 1960 to coordinate global oil supply.

However China is the largest importer of crude oilAccording to OPEC data, India ranks third while purchasing almost twice as much as the USA.

Among the three countries, India is the most dependent on oil imports, accounting for a quarter of total consumption, according to CNBC’s analysis. US Energy Information Administration data for 2023.

According to 2023 data, which also includes “other liquids” in the oil category, China was at a lower level with 14%, while the USA produced most of its oil needs.

While there is USA We increased domestic oil production Over the past decade, China has rapidly diversified its energy sources.

According to CNBC calculations based on International Energy Agency data, renewable energy sources, excluding nuclear power and hydropower, accounted for 1.2% of China’s total energy consumption in 2023; This rate was 0.2% twenty years ago.

India and the US recorded a much lower renewable energy share in 2023, at 0.2% each.

This is a small number for now. But the increasing share of renewables in China’s energy mix has global implications.

China’s electric vehicle move, especially in trucks, has already started displacement of implied oil demand by more than 1 million barrels per dayRhodium Group said this in July 2025.

The research firm expected that figure to rise by about 600,000 barrels per day over the next 12 months.

More than half of new passenger cars sold in China are now new energy vehicles; This means they rely on batteries rather than gasoline.

With on-road fuel demand already showing signs of peaking and renewable capacity increasing rapidly, China’s vulnerability to fluctuations in oil prices is becoming less and less common. [year-on-year] “On a basis,” OCBC analysts said.

“Over time, the electrification of transportation and the expansion of renewable energy generation will further insulate the economy from oil-related shocks.”

Oil and natural gas make up just 4% of China’s energy mix, far lower than the 40% to 50% share seen in many Asian economies, analysts said.

Electricity generated largely from coal and increasingly from renewable sources is now growing share 3 percent of China’s total energy consumption, according to energy think tank Ember.

renewable resources Provided approximately 80% of China’s new electrical energy demand “In 2024,” Ember said.

However, coal remains an important, albeit stagnant, energy source in the country. China became the world’s largest coal producer and consumer in 2023, despite efforts to reduce carbon emissions.

US sanctions against Iran have also made China one of the few buyers of Tehran’s oil.

Ano Kuhanathan, Head of Corporate Research at Allianz Trade, said Iran accounts for about 20% of China’s oil imports, but a large part of this volume can be filled by increasing oil imports from Russia.

The bigger risk comes from China importing about 5 million barrels of oil a day from other Middle Eastern countries through the Strait of Hormuz, Kuhanathan said.

As the Iran war enters its second week, it remains unclear when the conflict will end.

“A shock like this will likely reinforce rather than change the direction China is already heading,” said Muyi Yang, senior Asia energy analyst at Ember.

“This highlights the risks of relying heavily on imported oil and gas. That’s why the transition isn’t just about building more wind and solar power, it’s also about economy-wide decarbonisation,” he said.

However, change is not easy. The country’s fossil fuel industry is dominated by China’s state-owned companies, which tend to be less dynamic than their private sector counterparts.

China may also continue to build crude oil reserves.

The U.S. Energy Information Administration said in February it expected China to expand strategic stocks About 1 million barrels per day in 2026.

China’s crude oil imports are down nearly 2% in 2024, according to Wind Information. However, as tensions in the Middle East began to increase last year, China’s crude imports increased by 4.6%, reaching a record level of around 580 million metric tons.

“China is materially exposed but more resilient,” Kpler chief insights analyst Go Katayama previously told CNBC.

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