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

BEIJING — Surging oil prices following the Iran war are expected to impact China less than in past years as the country has built large crude stockpiles and diversified its energy sources, including renewables.

As oil prices climbed past $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 reserves,” the analysts said, adding that its “rapid transition toward electric vehicles and renewable energy provides an additional structural hedge.”

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

That’s about 3 to 4 months of reserves, which will 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 taken the last 20 years to reduce some of its dependence on maritime oil flows,” Doshi said, noting that new overland oil pipelines and some diversification to renewables mean the country now only relies on the Strait of Hormuz for about 40% to 50% of its seaborne oil imports.

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

The strait connects the Persian Gulf to the Arabian Sea and global shipping routes. It’s a narrow 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 passed through the Strait of Hormuz last year, or around 13 million barrels a day of crude, according to Kpler.

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

Natural gas imports through the route account for another 0.6%, he said.

The shift reflects two decades of strategic transition, giving China a unique position in global energy markets.

The U.S. is the world’s largest consumer of oil, followed by China and India, according to the Organization of the Petroleum Exporting Countries (OPEC), which was founded in 1960 to coordinate global oil supply.

But China is the largest crude importer, buying nearly twice as much as the U.S., while India ranks third, OPEC data showed.

Of the three, India is the most dependent on petroleum imports, accounting for one-fourth of its total consumption, according to CNBC’s analysis of U.S. Energy Information Administration data for 2023.

China was lower at 14%, while the U.S. produced most of its petroleum needs, according to the 2023 data, which includes “other liquids” in the petroleum category.

While the U.S. has ramped up domestic oil production over the past decade, China has rapidly diversified its energy sources.

Renewables, excluding nuclear power and hydropower, accounted for 1.2% of China’s total energy consumption in 2023, up from 0.2% two decades earlier, according to CNBC calculations based on International Energy Agency data.

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

That’s a tiny figure for now. But the growing share of renewables in China’s energy mix has global implications.

China’s electric vehicle push, especially in trucks, has already displaced over 1 million barrels per day of implied oil demand, Rhodium Group said in July 2025.

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

More than half of China’s new passenger vehicles sold are now new-energy vehicles, meaning they rely more on batteries than on gasoline.

“With road fuel demand already showing signs of peaking and renewable capacity expanding rapidly, China’s sensitivity to oil price fluctuations is declining on a [year-on-year] basis,” the OCBC analysts said.

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

Oil and natural gas only account for 4% of China’s power mix, far lower than the 40% to 50% share seen in many Asian economies, the analysts said.

Electricity, largely generated from coal and a growing amount of renewables, now accounts for a growing share of China’s total energy consumption, according to energy think tank Ember.

Renewables provided about 80% of China’s new electric power demand in 2024, Ember said.

But coal remains a significant, albeit stagnating, source of energy in the country. China was the world’s largest producer and consumer of coal in 2023, despite efforts to reduce carbon emissions.

U.S. sanctions on Iran have also made China one of the few buyers of Tehran’s oil.

Iran accounted for about 20% of China’s oil imports, though much of that volume could mostly be replaced by increased oil imports from Russia, said Ano Kuhanathan, Head of Corporate Research at Allianz Trade.

The larger risk lies in the roughly 5 million barrels per day of oil China imports 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 would likely reinforce the direction China is already taking rather than change it,” said Muyi Yang, senior energy analyst, Asia, at Ember.

“It highlights the risks of relying heavily on imported oil and gas. And that’s why the transition is not only about building more wind and solar, but also about economy-wide decarbonisation,” she said.

However, change doesn’t happen easily. The country’s fossil fuel industry is dominated by China’s state-owned corporations, which tend to be less dynamic than their private-sector peers.

China may also continue building crude reserves.

The U.S. Energy Information Administration said in February it expects China to expand strategic stockpiles by around 1 million barrels a day in 2026.

China’s crude oil imports dropped by nearly 2% in 2024, according to Wind Information. But as Middle East tensions started to simmer last year, China’s crude imports climbed 4.6% to a record of around 580 million metric tons.

“China is materially exposed but more flexible,” Kpler’s principal insight analyst Go Katayama previously told CNBC.

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