Before the U.S. attacked Iran, Beijing spent years and tens of billions of dollars amassing the world’s biggest stockpile of oil. Now, with the conflict likely to last for some time, those reserves have given China huge power over the global oil market—and a critical new defense against the West.
China’s crude reserves have given it huge power over the global oil market—and a critical new defense against the West. (Unsplash)
By some estimates, China’s reserves last year were nearly 600 million barrels bigger than those in the U.S. That stockpile allowed it to dramatically slash its oil imports when the war broke out, keeping a lid on global oil prices and safeguarding its own economy.
It has been a major vindication for Chinese leader Xi Jinping, who has sought to buttress China against what he sees as a hostile U.S.-led West. For decades, Chinese leaders have worried about the country’s heavy reliance on imported crude, most of which transits through straits that the U.S. or other militaries could seek to block in a conflict.
Now, the Iran crisis has demonstrated that China’s muscular energy policy has afforded Beijing a major tool it could use, for instance, in a war over Taiwan.
The Iran war shows that “against the backdrop of the world entering a new period of turbulence and transformation, localized regional conflicts are no longer confined to a specific locale,” researchers at a think tank under state-owned China National Petroleum wrote this spring. “China’s energy sector must maintain bottom-line and extreme-scenario thinking.”
China’s stockpiles, combined with its quicker-than-expected shift away from fossil fuels, are making it the most powerful swing buyer in global energy markets. It has slashed imports aggressively, which has prevented crude prices from jumping higher. Chinese crude oil imports fell 23% from March to July versus a year earlier.
As the crisis in Iran unfolded, in China, “almost from day one there was this sense that, ‘We are able to manage this. We don’t need to panic,’” said Erica Downs, a scholar at Columbia University’s Center on Global Energy Policy.
In the future, such power could be wielded in a clash with the U.S. In the event of a war over Taiwan, for example, Beijing’s ability to slash oil imports for months on end could help China resist efforts by the U.S. and its allies to block energy shipments to China.
In particular, most of China’s oil imports in recent years traversed the Strait of Malacca, near Singapore. Like the Strait of Hormuz in the Middle East, the narrow waterway is one of several chokepoints where the U.S. or other militaries could seek to block the energy trade.
For China, “oil is not the Achilles’ heel we thought it was,” said Michal Meidan, head of China energy research at the Oxford Institute for Energy Studies. “I think a lot of people thought China was very, very vulnerable to oil supply disruptions. It’s not.”
In response to questions, China’s Foreign Ministry said the current priority is restoring peace and stability in the Gulf and Middle East, and that all countries should work to ensure global energy security.
China doesn’t publish the size of its strategic oil reserves or reveal its oil consumption, forcing analysts to calculate “apparent demand” by adding up official refinery throughput and net imports of refined oil products.
China’s refineries cut runs by just 1.6 million barrels a day in the second quarter of 2026 from the same period last year, according to China’s National Bureau of Statistics. That is a modest drop compared with the 3.5 million barrels a day drop in imports.
Many economists say the explanation must lie with China’s vast crude-oil reserves.
No one knows the exact size of the reserves. Analysts put the total reserves at between 1 billion and 1.4 billion barrels, equivalent to around 120 days of imports.
Beginning in 2024, China accelerated its stockpiling, filling its reserves at approximately 1 million to 1.2 million barrels a day by some estimates. The country’s crude oil imports from Russia and Iran picked up a year before in 2023, when both countries accelerated their use of a “shadow fleet” to circumvent sanctions and sell their oil at steep discounts.
From 2022 to 2025, China’s imports of Russian crude jumped 26% and its imports of Iranian crude more than doubled, according to data from Vortexa.
China didn’t start to draw down its commercial inventories until early May, two months after the U.S. attacked Iran, according to data from Vortexa. Between May and mid-August, China withdrew its stockpile at roughly 700,000 barrels a day. Its aboveground strategic reserves remain largely intact, according to Vortexa.
Tapping stockpiles likely accounts for around half of China’s recent fall in imports, energy analysts say. Other measures include limiting exports of oil products. China’s gasoline exports plunged 93% in the second quarter compared with a year earlier, diesel exports are down by a quarter and jet fuel exports have halved, according to Chinese customs data.
Unable to export their oil products and stuck with price caps that have hammered margins at home, Chinese refineries started to cut runs. In June and July, refinery runs in China fell to roughly 12.5 million barrels a day from more than 15 million barrels a day before the war, according to the Oxford Institute for Energy Studies.
A standard 42-gallon barrel of crude oil yields about 4 gallons of jet fuel, 20 gallons of gasoline and 12 gallons of diesel, meaning that any reduction in gasoline, diesel and jet fuel outputs leads to a larger decrease in crude oil demand.
China has prepared for years for this moment, making energy security a national priority as early as 2014. Extensive government support of the renewable sector has reduced the country’s reliance on oil to generate electricity.
In the first half of this year, around two-fifths of the country’s total electricity generation came from renewables, according to official data. Half of the new cars sold in China this year are new energy vehicles.
Cheap electric vehicles, a large charging network and a high-speed rail network spanning tens of thousands of miles meant that Chinese consumers could easily switch to other travel options when fuel gets expensive. And they did.
Between January and July this year, China’s road traffic fell around 2% from a year ago. Rail passenger numbers increased by 4%.
China has also tapped coal. While turning the old-fashioned source of energy into chemicals is more expensive than using oil or natural gas, China’s domestic coal reserves are vast. By perfecting coal-to-chemical processing over many years, it has further protected the country against disruptions to oil supplies, said Helen Qiao, greater China economist at Bank of America.
To be sure, analysts and economists say China, which relied on imports for 70% of its crude oil supply before the war, can’t keep imports this low forever. The longer that flows through the Strait of Hormuz remain constrained, the more officials will have to balance economic growth with ensuring oil stockpiles don’t fall too much. But they disagree on when China will start buying more crude, and how much.
And while the Chinese economy has generally held up since the start of the war, there are signs of pain.
“Restricting exports is indeed a lever China can pull anytime, but it still entails economic costs,” said Tom Reed, head of oil market analysis at Argus Media, a price reporting agency.
For instance, the sharp fall in high-margin businesses such as diesel and gasoline exports is hurting Chinese refineries, as well as the country’s manufacturing and export machines more broadly.
Larry Hu, chief China economist at Macquarie, estimates that 90% of the slowdown in industrial production in the second quarter was tied to the oil and petrochemicals industrial chain.
Higher oil prices, and the subsequent demand destruction in China, Hu said, is a crucial reason why economic growth slowed in the second quarter to its slowest level since late 2022.
Write to Rebecca Feng at rebecca.feng@wsj.com and Brian Spegele at Brian.Spegele@wsj.com
Tags:
- Conflicts
- geopolitics