As the Strait of Hormuz, through which about 20% of the world's oil shipments pass, was again closed by the Iran war and international oil prices remain unstable, analysis suggests that China's oil imports will determine whether prices surge going forward.
On the 13th, the New York Times (NYT) said, "For decades the oil market moved depending on how much crude the Organization of the Petroleum Exporting Countries (OPEC) produced, but now China, the world's largest crude importer, is showing formidable influence in steering prices."
China is the world's largest crude importer and, even at the start of the war, was cited as the country likely to suffer the biggest blow. In particular, its high dependence on crude from Venezuela and Iran, both under U.S. sanctions, led to expectations that U.S. military intervention would cut off key supply sources and make disruptions inevitable.
However, after the war broke out China voluntarily slashed crude imports. According to CNBC, imports that reached 11.7 million barrels a day as recently as February fell to below 9 million barrels a day by the end of May. Analysts say reduced run rates at Chinese refineries during the war and an early-war ban on petroleum product exports contributed to lower crude imports.
Earlier, JP Morgan said China's drop in crude imports accounted for about 74% of the global decline in imports, and that this pullback helped keep prices "surprisingly stable" during more than four months of the Iran war.
China's massive strategic petroleum reserves are also seen as a buffer. China is believed to hold the world's largest crude stockpiles and has abundant alternatives to oil, including coal, renewable energy, electric vehicles, and high-speed rail. Ben Cahill, a senior fellow at the Washington-based think tank the Atlantic Council, said, "China is under no immediate pressure to increase crude imports."
Some say China's influence on the oil market has grown to rival that of the former Organization of the Petroleum Exporting Countries (OPEC). Gregory Brew, an analyst at the Eurasia Group, said, "Right now China is exerting more influence on the oil market than Saudi Arabia or the United States."
But prevailing analysis holds that this was less a case of China voluntarily wielding market power to stabilize prices and more an unavoidable response to supply disruptions from the Iran war. In fact, according to a European Central Bank (ECB) report, as China—buyer of about 80% of Iran's seaborne crude exports—cut oil imports this year to the lowest in eight years, run rates at Shandong's private independent refineries, which have relied heavily on Iranian crude, fell into the 50% range, the lowest in nine years, negatively affecting manufacturing broadly, including petrochemicals.
There is also criticism that the recent price stability cannot be explained solely by China's reduced imports. Experts say several buffers on the supply side operated simultaneously.
Even as the Iran war continues, Gulf producers are maintaining exports by using routes that bypass the Strait of Hormuz, including the United Arab Emirates' Fujairah pipeline and Saudi Arabia's east–west pipeline. The International Energy Agency (IEA) estimates these bypass lines can supply about 3.5 million to 5.5 million barrels of crude a day.
In addition, according to the British shipping journal Lloyd's List, the so-called "high-risk shuttle service" operated by Abu Dhabi National Oil Company (ADNOC) and Kuwait Petroleum Corporation (KPC) is also cited as one factor that curbed a spike in oil prices. It is helping open the spigot for Gulf crude exports. In the high-risk shuttle service, certain tankers load crude inside the Persian Gulf, transit the Strait of Hormuz despite the risk, conduct ship-to-ship (STS) transfers in the Gulf of Oman to other tankers, then return inside the Gulf to reload and repeat. Only a limited set of vessels sail the risky segment, while regular tankers take on crude outside the Strait of Hormuz and carry it to final destinations such as Asia. While this alone cannot meet global oil demand, it is credited with playing a significant role in preventing a full-blown supply disruption and keeping crude flowing.
Meanwhile, the IEA said that although the Middle East war disrupted crude shipments through the Strait of Hormuz, output increases by non-OPEC+ producers such as the United States, Canada, Brazil, Guyana, and Argentina absorbed much of the supply shock. In particular, higher production centered on U.S. shale oil, Canada's oil sands, Brazil's deepwater fields, and Guyana's offshore fields partly offset reduced supplies of Middle Eastern crude.