China’s energy network is facing challenges
Since the United States and Israel launched strikes against Iran in late February, the global economy has been thrown into turmoil. Subsequently, oil prices surged to nearly $120 per barrel (about £90). This was mainly due to attacks targeting shipping and energy infrastructure, as well as the de facto closure of the Strait of Hormuz, the world’s busiest oil shipping lane. According to estimates by the U.S. Energy Information Administration (EIA), about one-fifth of the world’s oil is transported through this strait, amounting to roughly 20 million barrels per day. Shortages are prompting countries outside the Middle East to seek alternative crude-oil suppliers, while other nations are drawing down their strategic petroleum reserves.
As the world’s second-largest oil consumer after the United States, several market analysts told the BBC that China’s average daily crude oil consumption is estimated to be between 15 million and 16 million barrels. These petroleum products primarily fuel China’s extensive network of cars, trucks, and aircraft, with the majority imported from overseas. Gulf countries are the primary source of China’s crude oil imports, with Saudi Arabia and Iran each accounting for more than 10% of China’s import volume, according to EIA data. The country imports most of its crude oil from Iran and the Middle East, which is transported via the South China Sea. This oil primarily fuels industrial operations and transportation, with demand concentrated in the southern region. However, the country’s northern region primarily relies on domestically produced oil from large oilfields, as well as pipeline imports from Russia—neither of which has been disrupted by the Middle East conflict. Although many Asian countries are heavily reliant on oil from the Gulf states, Russian oil accounts for nearly one-fifth of China’s energy imports. This means that, despite sanctions imposed by the United States and Europe, Moscow remains Beijing’s largest oil supplier. Coal is also the primary source of electricity in most of China, and domestic supplies are ample. China is the world’s largest coal producer, accounting for more than half of global coal output. Meanwhile, according to estimates released by state media, oil and natural gas account for just over one quarter of China’s total energy mix, making the country less dependent on these resources than Europe and the United States. Better safe than sorry. Ole Hansen, Head of Commodity Strategy at Saxo Bank, said that over the years, Beijing has leveraged lower crude oil prices and ample supplies from Gulf countries to build one of the world’s largest petroleum reserves. According to data from the General Administration of Customs, Beijing’s crude oil imports increased by 16% in January and February of this year compared with the same period last year. Iran’s oil is subject to U.S. sanctions, yet it has remained a key supplier of low-cost crude to China. Reports indicate that Beijing purchases more than 80 percent of Iran’s oil exports. Ship-tracking data since the start of the Iran war show that some oil continues to reach China, even though analysts disagree on the exact size of China’s petroleum reserves. According to data from the trade analytics firm Kpler, more than 46 million barrels of Iranian crude oil are currently moored on tankers along the South China Sea coast, equivalent to several days’ worth of energy consumption. Hansen said estimates indicate that China has built up roughly 900 million barrels of strategic petroleum reserves, slightly less than three months’ worth of imports. Chinese state media, citing data from Columbia University, reported that China’s oil reserves stand at approximately 1.4 billion barrels. Hansen pointed out that it remains unclear how much imported energy China consumes each day, nor how much of it is being injected into the country’s strategic petroleum reserves. He added that such a large amount could still serve as a “significant buffer” during times of turmoil. Despite its reserves, Beijing is still signaling a cautious approach to managing future supplies. According to reports, Chinese government authorities have ordered refineries to temporarily halt fuel exports in an effort to curb domestic prices. The Chinese government has not responded to BBC inquiries on this matter.China is pursuing self-reliance.
China has become a global leader in the green energy sector, rapidly deploying wind and solar farms across the country. According to data from the National Bureau of Statistics, by 2025, wind, nuclear, solar, and hydropower will account for more than one-third of China’s electricity generation. However, since then, China has significantly expanded its renewable energy grid. It is estimated that more than half of the country’s installed power capacity now comes from clean sources. Thanks to the boost from renewable energy, crude oil accounted for only about one-fifth of China’s total energy consumption in 2024. The International Energy Agency (IEA) stated that oil demand is unlikely to rise again in the future. Energy economist Roger Fouquet argues that China’s “ambitious” transition to renewable energy is not merely an environmental initiative; it also helps shield the country’s economy from global risks, such as conflicts in Iran. “In a sense, China has been fortunate, because it began investing in renewable energy 25 years ago and is now reaping the benefits,” he said. Roc Shi of the University of Technology Sydney stated that electric vehicles (EVs) account for at least one-third of new car sales in China, which has also helped reduce the Chinese economy’s reliance on oil. “This means that when tensions rise in the Middle East, electric vehicle owners in Beijing won’t have to endure the frustration of refueling.” “Their travel costs have become decoupled from the international market.”This is not to say that the Chinese economy is immune to oil supply shocks. If fuel prices rise, the cost of charging electric vehicles may increase during the energy crisis. According to an official report cited by the state-run China Daily, gasoline and diesel prices rose by RMB 695 (about USD 100; GBP 75) and RMB 670 per tonne, respectively, last week. For Chinese factories, rising oil prices will also increase costs across the country’s massive petrochemical industry, which produces plastics, fertilizers, and other chemical products. Shi stated that, as the world’s largest energy importer, China now faces a higher price tag on every barrel of oil due to the war—yet it has no choice but to pay the premium.
Source: BBC