Why China can withstand higher oil prices more easily than other countries

BEIJING — The post-Iran war surge in oil prices is expected to have less of an impact on China than in past years, as the country accumulates large oil reserves and diversifies its energy sources, including renewables.

With oil prices above $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 a prolonged closure of the Strait of Hormuz.”

“China has amassed some of the world’s largest strategic and commercial crude oil reserves,” the analysts said, adding that “rapid transition to electric vehicles and renewable energy provides further structural hedges.”

China had an estimated 1.2 billion barrels of onshore crude oil reserves as of January.

That’s about three to four months worth of reserves, and the economic impact will be delayed, Rush Doshi, director of China Strategic Initiatives at the Council on Foreign Relations, said Monday on CNBC’s “Squawk Box Asia.”

“China has reduced some of its dependence on offshore oil flows over the past 20 years,” Doshi said, noting that with new onshore oil pipelines and diversification into renewable energy, the country now relies on the Strait of Hormuz for only about 40 to 50 percent of its offshore oil imports.

China aims to increase the share of non-fossil fuels in total energy consumption to 25% by 2030, from 21.7% in 2025.

The strait connects the Persian Gulf to the Arabian Sea and the world’s shipping routes. It is a narrow passage bordering Iran to the north and Oman and the United Arab Emirates to the south. Last year, about 31% of the world’s offshore oil flows, or about 13 million barrels of crude oil per day, passed through the Strait of Hormuz, according to Kupler.

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

Natural gas imports through this route accounted for an additional 0.6%, he said.

The changes reflect a two-decade strategic shift that gives China a unique position in the global energy market.

According to the Organization of the Petroleum Exporting Countries (OPEC), founded in 1960 to coordinate global oil supplies, the United States is the world’s largest oil consumer, followed by China and India.

But OPEC data shows China is the largest oil importer, buying almost twice as much crude as the United States, and India is third.

Of the three countries, India is the most dependent on oil imports, accounting for a quarter of total consumption, according to a CNBC analysis of 2023 US Energy Information Administration data.

According to 2023 data (the oil category also includes “other liquids”), China had a lower rate of 14%, while the United States produced most of its oil needs.

While the United States has increased domestic oil production over the past decade, China is rapidly diversifying its energy sources.

Renewable energy, excluding nuclear 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 a much lower share of renewable energy in 2023 at 0.2% each.

That’s a small number for now. However, the increasing share of renewable energy in China’s energy mix is ​​having global implications.

Rhodium Group announced in July 2025 that China’s push for electric vehicles (particularly trucks) has already replaced more than 1 million barrels per day of implied oil demand.

The research firm expected that figure to rise by about 600,000 barrels per day over the next 12 months.

Currently, more than half of new passenger cars sold in China are new energy vehicles, meaning they rely on batteries rather than gasoline.

“China’s sensitivity to oil price changes has declined on a (year-over-year) basis, with road fuel demand already showing signs of peaking and renewable energy capacity expanding rapidly,” OCBC analysts said.

“Over time, the electrification of transportation and the expansion of renewable generation will further insulate the economy from oil-related shocks.”

Oil and gas account for just 4% of China’s electricity mix, analysts say, far lower than the 40-50% share seen in many Asian countries.

According to energy think tank Ember, electricity is primarily generated from coal, with increasing amounts of renewable energy now accounting for a growing share of China’s total energy consumption.

About 80% of China’s new electricity demand in 2024 will be met by renewable energy, Enver said.

But coal remains the country’s key energy source, albeit stagnant. Despite efforts to reduce carbon emissions, China will become the world’s largest producer and consumer of coal by 2023.

U.S. sanctions against Iran have made China one of the few buyers of Tehran’s oil.

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

Kuhanatan said the bigger 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.

The Iran war has entered its second week, but it remains unclear when the conflict will end.

“Shocks like this are likely to strengthen rather than change the direction China is already taking,” said Mui Yan, senior energy analyst for Asia at Enver.

“This highlights the risks of relying heavily on oil and gas imports, which is why this transition is not just about adding wind and solar power, but also about decarbonizing the entire economy,” she said.

But change doesn’t come easily. China’s fossil fuel industry is dominated by Chinese state-owned enterprises, which tend to move more slowly than their private sector peers.

China may also continue to accumulate oil reserves.

In February, the U.S. Energy Information Administration predicted that China would expand its strategic stockpiles by about 1 million barrels a day in 2026.

According to Wind Information, China’s crude oil imports decreased by nearly 2% in 2024. However, as tensions in the Middle East began to rise last year, China’s crude oil imports increased by 4.6% to a record 580 million tonnes.

“China is at considerable risk, but it is more flexible,” Go Katayama, principal analyst at Kpler, previously told CNBC.

—CNBC’s Sam Meredith, Ying Shan Lee and Penny Chen contributed to this report.