As efforts continue to restore normal oil shipments through the Strait of Hormuz following months of conflict involving Iran, analysts say the future direction of global oil prices may depend heavily on China.
Although not directly involved in negotiations over the vital shipping route, China has played a major role in stabilizing energy markets during a period of significant supply disruption. As the world’s second-largest consumer of crude oil, China has managed to reduce the impact of rising energy costs by cutting imports, drawing on large strategic reserves and expanding the use of cleaner energy sources.
These measures have helped shield its economy from the worst effects of the crisis while also influencing global oil demand. The conflict involving Iran disrupted access to more than 11 million barrels of oil per day, leading some market observers to predict that crude prices could soar to as much as $200 per barrel.
However, despite estimated supply losses exceeding one billion barrels, prices have remained lower than many expected. Analysts say China’s ability to curb demand has been a major factor behind the market’s resilience.
Daan Walter, a principal at energy think tank Ember, said China has effectively helped absorb some of the supply shock, reducing pressure on both Asian economies and the wider global market.
On Monday, Brent crude, the international benchmark for oil prices, dropped below $78 per barrel amid expectations that shipping through the Strait of Hormuz could soon return to normal.
Before the escalation of the conflict, Brent crude traded below $70 per barrel but later climbed to a four-year high of $114 in early May. Experts believe China’s growing influence in global energy markets means its consumption trends and policy decisions will remain critical to oil price movements, regardless of developments in the Middle East.
In a recent research note, analysts at Societe Generale highlighted that during the 1973 Arab oil embargo, a 7% reduction in global crude supply triggered a 134% increase in prices. By comparison, the current conflict has affected roughly 14% of global supply, yet oil prices have not experienced a similar surge.
The bank attributed much of that difference to China’s ability to reduce imports by around three million barrels per day — a volume roughly equivalent to Japan’s total oil demand. According to Janiv Shah, Vice President of Oil Markets at Rystad Energy, China was able to make these adjustments because it spent years building substantial reserves, aided by discounted purchases of sanctioned oil from Russia and Iran.
Analysts estimate that China now holds more than one billion barrels of oil in commercial and strategic storage facilities. The country reportedly began drawing from those reserves in May to help meet domestic demand.
“China has been putting a floor under prices,” Shah said, noting that its role in the market has shifted significantly this year. With uncertainty surrounding global supply and demand, market observers say China’s next moves could prove just as important to oil prices as developments in the Strait of Hormuz.
