Why can China withstand a surge in oil past $100 more easily than other countries?

BEIJING – Rising oil prices since the Iran war are expected to affect China less than in past years as the country has built up large crude reserves and diversified into renewable energy sources.

As oil prices crossed $100 a barrel for the first time in four years, OCBC analysts said China “may be less sensitive than many of its Asian peers to the prolonged closure of the Strait of Hormuz.”

“China has accumulated one of the world’s largest strategic and commercial crude reserves,” the analyst said, “and 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 inventories as of January.

That’s about a 3- to 4-month reserve, 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 its dependence on seaborne oil flows,” Doshi said, adding that with new underground oil pipelines and some diversification into renewables, the country now relies on the Strait of Hormuz for only 40% to 50% of 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 lanes. It is a narrow strait with Iran to the north and Oman and the United Arab Emirates to the south. According to Kpler, about 31% of the world’s offshore oil flow passed through the Strait of Hormuz last year, or about 13 million barrels per day.

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

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

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

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

But China is the biggest crude importer, buying nearly twice as much as the US, while India is 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 US Energy Information Administration data for 2023.

According to data for 2023, which includes “other liquids” in the petroleum category, China is down 14% while the U.S. produces most of its petroleum needs.

While the US has increased domestic oil production over the past decade, China has rapidly diversified its energy sources.

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

India and the US recorded the lowest share of renewables at 0.2% each in 2023.

For now it is a small figure. But the growing share of renewables in China’s energy mix has global implications.

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

The research firm expects a rise of about 600,000 barrels per day over the next 12 months.

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

“With road fuel demand already peaking and renewables showing signs of potential, China’s sensitivity to oil price fluctuations is diminishing on a (year-over-year) basis,” 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 account for only 4% of China’s energy mix, down from the 40% to 50% seen in many Asian economies, analysts said.

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

Renewables will provide 80% of China’s new electricity demand in 2024, Ember said.

But coal is still significant as a source of energy in the country. Despite efforts to reduce carbon emissions, China was the world’s largest producer and consumer of coal in 2023.

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

Iran accounts for about 20% of China’s oil imports, although much of that could be replaced by increased oil imports from Russia, said Ano Kuhanathan, head of corporate research at Allianz Trade.

Kuhanathan said the biggest risk lies in the roughly 5 million barrels of oil per day that China imports from other Middle Eastern countries through the Strait of Hormuz.

As the Iran war enters its second week, it is unclear when the conflict will end.

“This kind of shock would reinforce the direction China is already taking, rather than change it,” said Mui Yang, senior Asia energy analyst at Ember.

“It highlights the dangers of relying too 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,” he said.

However, change does not happen easily. The country’s fossil fuel industry is dominated by Chinese state-owned corporations, which are less dynamic than their private sector peers.

China may also continue to build crude reserves.

The US Energy Information Administration said in February that China is expected to expand strategic stockpiles by about 1 million barrels per day in 2026.

According to Wind Data, China’s crude oil imports are expected to decline by around 2% in 2024. But as Middle East tensions began to simmer last year, China’s crude imports rose 4.6% to a record 580 million metric tons.

“China is physically 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.