Global oil demand is forecast to rise by more than 10% in 2026, with non‑OECD economies accounting for the entire increase and China taking the lead on a country level.
Now, as global supplies are constrained because of the war in Iran, China could be caught in a squeeze. That squeeze is exacerbated by the rise in the price of oil, which the Trump administration on Thursday vowed to address through a range of measures, from tapping the Strategic Petroleum Reserve to reducing the cost of shipping oil through the Strait of Hormuz.
Get Joe Brusuelas’s Market Minute economic commentary every morning. Subscribe now.
But for China, the quandary goes beyond price. China imports 11 million to 11.5 million barrels per day, some of which is from the sanctioned nations of Iran and Venezuela.
But with imports from the Mideast likely to be constrained for some time, China’s economic growth target this year of 4.5% to 5%, its lowest since 1991, will be put to the test.
Before the war, China is thought to have purchased 1.3 million to 1.4 million barrels per day of Iranian crude, which accounts for 13% to 15% of Beijing’s total oil imports.
That demand absorbed 80% to 90% of Iran’s oil exports, so any disruption in the flow of oil out of the Middle East to China will materially affect its energy costs.
More than 40% of China’s oil is supplied by countries in the Mideast. Of note, two-thirds of Iraq’s exports of crude oil go to China and India, where refineries are configured for heavier grades.
But China has reportedly been diversifying its suppliers of crude and stockpiling enough to weather a drop in supply from the Middle East.
China is estimated to have a stockpile of 1.4 billion barrels—assuming no corruption, right of first refusal for party-linked private firms or a run on fuel stocks. That total should equal approximately 120 days of net imports.
The United States, by comparison, has 415 million barrels in the Strategic Petroleum Reserve, with an authorized storage capacity of 714 million barrels, or 58.1% of statutory volume. That is equal to about 20 days of imports.
The difference, though, is that the U.S. can meet its own domestic needs while China cannot. But it faces a challenge on the rising price of oil.
The takeaway
China’s stockpiling of crude and diversification of supply suggest the ability to weather an approximately four-month cut from oil moving through the Strait of Hormuz.
Even with that stockpile, though, one gets the sense that China’s overreliance on imported oil will eventually cause China to lean on Iran to seek a way out of the war sooner rather than later.
