Gas prices are high right now – averaging about a dollars more than last year for Americans. But given that we are less than 100 days away from the closure of the Strait of Hormuz, which the International Energy Agency called “the largest oil supply shock in history,” it seems like it should be much higher. When the Hormuz crisis started, many analysts were predicting the price of oil it will rise to $200 a barrelwhich could mean gas in the $6.50 to $7 per gallon range. Instead, the oil is now trading below $90 per barrel.
That’s thanks to some promising recent diplomatic developments, but it’s never risen above around $114, the bottom. the height reached after the Russian invasion of Ukraine in 2022. The gas lines of the 1970s that many hoped for have not materialized.
So what’s going on? There are few details. One is that more oil is still leaving the Middle East than many thought possible. through alternative pipes and through secret means through Hormuz itself. The other is the oil producing countries that don’t do it they depend on Hormuz, many important United Statesthey increase production. Many countries also continue to use their strategic reserves. But perhaps the biggest and most unexpected thing is that the most insatiable consumer of oil has stopped buying it.
China is usually the leading importer of crude oil, and it gets that oil from Iran and other Middle Eastern countries. Chinese imports they have fallen from all sides 11.6 million barrels per day to around 7.8 million, the lowest levels since 2017. To put it simply, there are millions more barrels per day for other countries to import than anyone thought possible. Good news for every other economy in the world – but what about China itself?
“If I didn’t know anything about what was going on and I was just looking at my data, I would have thought there had been a collapse in demand in line with the Covid-zero lockdown,” said Rory Johnston, a Toronto oil market researcher, referring to the bad policies the Chinese government put in place during the pandemic that effectively brought its domestic economy to a standstill. “But that’s surprising, because I haven’t seen any news about China getting its economy back.”
China’s economy has not slowed down. Quite the contrary: All available data on industrial output, vehicle traffic, pollution and other economic indicators suggest that the country is booming as usual. In recent years, the situation in China has done major investment in green energy and electric vehicles. That investment may have helped cushion the blow, but it’s still not enough to account for the numbers we’re seeing.
Instead, we seem to be seeing the results of a long-term strategy. Back in 2023, many Analysts were confused by the fact that China was rapidly increasing its crude oil imports and its refineries were producing larger quantities of gasoline and diesel, despite the fact that the country’s economy was slowing. There seemed to be little demand for all that oil at the time. We may be seeing the fruits of that conservation now.
The Chinese government has also not explained their reasons for reducing imports during the current crisis, nor has it publicly acknowledged that this is the case. The closest we’ve gotten to official confirmation of what’s happening may be from US Energy Secretary Chris Wright, who said that China releasing fuel from its strategic petroleum reserves.
The strange thing about it, notes Johnston, is that strategic storage tanks in China that are visible to commercial satellites appear to be as full if not fuller than they were before the war. So where does all their oil come from?
Most likely, China has large underground reserves that are not visible from the outside. The Chinese government has also ordered state-owned commercial companies to maintain their strategic petroleum reserves. Either way, China has more oil than we thought.
How long can China keep this up? Johnston says that’s hard to say given that China’s estimated stocks range from half a billion to one and a half billion barrels. But in theory, it could be months.
Why is Beijing doing this?
In theory, it’s possible that when President Donald Trump and Chinese President Xi Jinping met in May, they reached some a kind of agreement for China to reduce its imports. After all, Trump is benefiting politically from the election.
But it seems unlikely that Xi would agree to a policy of writing war against one of his allies, and just as unlikely that Trump would not tell anyone that he had made such a major concession. Most likely, China sees benefits in preventing a unilateral conflict in countries that are its most important export markets.
Intentionally or not, however, China’s policies may prolong the war. Trump is clearly eager to reach an agreement to reopen Hormuz, but not desperate enough agreeing to a major deal or Iran’s nuclear deal or sanctions relief. His urgency might be different if oil were $150 a barrel instead of $90, putting more pressure on American consumers during a crucial election year. With all attention paid to how Chinese missiles and satellite could help Iran’s war effort, that aid could be outweighed by how its energy policies help the United States.
Beyond this conflict, China’s policy may have significant strategic implications for China’s ability to grow. use its role in the world economy – a competitive field in which the United States dominated for a long time. As Eurasia Group oil analyst Gregory Brew wrote on X“The world no longer has a swing producer” – referring to how Saudi Arabia’s oil production capacity once allowed it to almost automatically turn the global energy market – “but it can have flexible consumers.”
In other words, China intends to keep oil prices lower than they would otherwise be. It could in theory pull the rug out and raise world prices as well.
In part, China is also a country that traditionally tends to store things, be it oil, strategic metalsor even pork. When it started its oil buying spree a few years ago, there were rumors that it might be preparing for the world’s biggest crisis, namely the invasion of Taiwan.
There has always been an assumption that major disruption of international trade a war on Taiwan could cause the kind of guaranteed economic damage that could help deter Beijing from taking action. But what we’re seeing is that China may actually be more insulated from that kind of disruption — and may even cause it — than we thought.
