Global oil routes blocked, testing China's energy resilience

Ask AI · How can China’s energy resilience respond to global supply crises through a decade of transformation?

The military conflict between the U.S. and Israel against Iran has become a high-intensity stress test for the energy supply system. Investments once considered “distant water” a decade ago have become the most reliable “thirst quenchers” today. The transformation China has completed in ten years is demonstrating resilience amid this extreme stress test.

▲The country’s largest natural gas storage facility — China National Petroleum’s Hutu Bie Storage. Zhao Kai / Photo

The U.S. and Israel’s military strikes on Iran have lasted over a month, causing the transit volume through the Strait of Hormuz, the “throat” of global energy, to plummet by over 90%. Gulf oil-producing countries collectively cut production, pushing Brent crude oil prices to nearly two-year highs. An emergency report from the International Energy Agency in March called this the “most severe” supply disruption in history, with the global oil market facing a daily supply gap of at least 10 million barrels.

This military conflict has become a high-intensity stress test for the energy supply system. But the true value of such a test lies not in assessing limits, but in whether “structural preparedness” can be effective when crises occur. By the end of 2025, China’s apparent land-based crude oil inventories exceed 1.2 billion barrels. According to a research report from Huatai Securities, even if Middle Eastern imports decline by 80%, releasing inventories can sustain supply for 260 days; import sources have decreased reliance on the Middle East from 52.3% ten years ago to 42.3%, with onshore pipeline gas increasing to about 49%, forming a “land-sea combined” supply pattern.

It’s not only traditional energy sectors that are prepared. By 2025, nationwide renewable energy power generation will reach 3.99 trillion kWh, a 15% year-on-year increase, accounting for over 38% of total electricity consumption for the first time. Wind and solar power installations total 1.84 billion kW, making up 47%, surpassing thermal power for the first time in history.

Investments once considered “distant water” a decade ago have become the most reliable “thirst quenchers” today. The transformation China has completed in ten years is demonstrating resilience amid this extreme stress test.

Short-term pressure, long-term controllability

By 2025, China’s dependence on foreign oil remains high at 72.7%, and natural gas dependence is 40%. The Strait of Hormuz is the essential route for Gulf oil exports. If this vital passage is cut off, can China respond calmly?

The answer is gradually becoming clear. In late March, China National Petroleum, Sinopec, and China National Offshore Oil Corporation held intensive performance briefings for 2025, all responding uniformly: short-term supply is not a concern, and long-term preparations are in place. As the “supply guarantee” implementers, these frontline companies’ judgments are more convincing than any macro data.

Cao Huoliang, Chairman of China National Petroleum, revealed that imports of crude oil and natural gas via the Strait of Hormuz account for only about 10% of total operations, and these two industries can ensure long-term stable operation. Wan Tao, President of Sinopec, admitted that refining and chemical operations face significant challenges but confirmed that inventories are sufficient to ensure stable production and operations. Yan Hongtao, Senior Vice President of CNOOC, stated that the company is currently progressing steadily according to established plans, tasks, and workloads. Despite different positions, these three companies share the same judgment: China’s oil and gas system can withstand this crisis.

Dong Xiucheng, Executive Dean of the China International Carbon Neutrality Economy Research Institute at the University of International Business and Economics, also said that overall, the impact of the US-Israel-Iran conflict on China’s energy development is short-term pressure but long-term controllability. “In the short term, rising oil and gas prices increase economic operating costs, cause fluctuations in industrial and supply chains, and pose inflation risks. In the medium to long term, China will accelerate diversification of oil and gas imports, improve energy reserve systems, strengthen energy-saving and efficiency measures, and enhance energy independence and renewable substitution capabilities, continuously boosting energy security resilience.”

Dong pointed out that, specifically, soaring oil prices could raise China’s import costs for oil and gas, potentially leading to imported inflation, increasing costs in chemicals, logistics, manufacturing, and other sectors. Additionally, supply chain disruptions and blocked import channels could double freight and insurance costs, leading to unstable supplies.

“But China’s large oil and gas reserves can be released when necessary, effectively hedging short-term supply disruptions. Moreover, the import landscape is diversified; the Middle East is only part of it. China can continue implementing a diversified import strategy, increasing imports from regions outside the Middle East to disperse risks,” Dong analyzed.

Expert Fu Chuan from the Gas Department of the China Petroleum Planning Institute said that if the conflict persists long-term, disruptions in raw material imports, increased shipping costs, and the ripple effects of high international oil and gas prices will impact domestic refining and metallurgy sectors. This indicates that from industrial production to end-user chains, cost pressures are gradually transmitting.

A multi-layered safeguard network as a foundation

The confidence in long-term controllability comes from strategic reserves. According to multiple assessments, China has established a leading three-tier oil reserve system: national strategic reserves, commercial reserves, and corporate obligation reserves. The total crude oil reserves amount to about 1.2 to 1.5 billion barrels, covering 140 to 180 days of net crude oil imports, far exceeding the IEA’s 90-day safety threshold. More importantly, this reserve system continues to expand.

If strategic reserves address the “enough oil” issue, what truly underpins stability is a layered safeguard network built over decades and activated during crises.

Data from the General Administration of Customs show that in 2025, China’s crude oil imports came from 49 countries, with Middle Eastern imports dropping to 42.3%, down 10 percentage points from ten years ago. The diversification of natural gas imports is even more evident, sourcing from over 20 countries. With pipelines from Russia and Myanmar, and Central Asian pipelines, pipeline gas imports now account for about 49%.

Data released earlier this year by the National Energy Administration further confirms this system’s capacity: in 2025, China’s primary energy production exceeded 5 billion tons of standard coal for the first time, with crude oil output at 216 million tons and natural gas at 262.06 billion cubic meters, increasing by over 10 billion cubic meters for nine consecutive years. With over 84% energy self-sufficiency, China’s energy production can meet most of its needs. When external supplies are cut off, domestic production becomes the most reliable “ballast.”

Under pressure, is China turning crises into opportunities for structural adjustment?

Lin Boqiang, Dean of the China Energy Policy Research Institute at Xiamen University, believes that the sudden geopolitical crisis confirms the correctness of China’s energy substitution path of “wind, solar, energy storage, and electric vehicles.” He states that China’s ample commercial and strategic oil reserves provide strong “immunity” against short-term oil price fluctuations. The deeper confidence lies in the fact that electricity accounts for 30% of energy consumption, and oil for transportation accounts for 48%, with more than half of rigid demand concentrated in industrial sectors like chemicals.

Academician Wu Qiang of the Chinese Academy of Engineering pointed out that shifting from “supply guarantee” to “substitution,” and from “finding oil” to “换电” (battery swapping), signifies a fundamental change in the underlying logic of energy security.

This crisis is also accelerating China’s efforts to build a new energy system.

Data from the National Energy Administration show that in 2025, renewable energy power generation will reach about 3.99 trillion kWh, a 15% increase year-on-year, accounting for about 38% of total power generation. Wind and solar installations total 1.84 billion kW, making up 47%, surpassing thermal power for the first time. Changes on the demand side are even more rapid: in 2025, new energy vehicles will account for over half of new car sales, with a stock exceeding 43 million, saving about 85 million tons of crude oil annually. This structural substitution is gradually weakening the destructive impact of oil supply shocks from the source.

The “14th Five-Year Plan” explicitly promotes the safe and reliable replacement of fossil fuels with non-fossil energy, implementing a tenfold increase in non-fossil energy development over ten years. China has now built the world’s largest and fastest-growing renewable energy development and utilization system. The shift from short-term pressure to long-term controllability hinges on this structural substitution process.

“It’s like renovating the roof of an old house while building a brand-new one beside it. When a crisis hits, the old roof can only hold for a while, but the new house is already livable. The transformation China has achieved in ten years is delivering its first answer in this extreme stress test,” said an industry insider who preferred to remain anonymous.

“In the long run, ensuring energy supply must rely on new safety paradigms. Renewable energy differs from traditional fossil fuels in that it lacks significant resource concentration. The relatively even distribution of global wind and solar resources allows for increased energy independence, and energy security will drive the energy transition,” said Jia Zhao, researcher at the China National Offshore Oil Corporation Energy Economics Research Institute.

Redefining the relationship within the global energy system

Xing Ziqiang, Chief Economist of Morgan Stanley China, pointed out that China’s relatively stable supply chain and energy transition bring certain resilience, but “it cannot be completely immune.” As a manufacturing powerhouse, imported inflation is a cost-push shock: a $10 increase in oil prices directly raises China’s PPI and CPI by about 0.3 and 0.1 percentage points, respectively.

This also means that in the future, China’s manufacturing, export trade, overseas interests, and even the internationalization of the RMB will be reshaped by this crisis in various ways.

Currently, the ongoing escalation of conflicts in the Middle East, blockages in the Strait of Hormuz and the Red Sea, and the forced adjustments of international shipping routes, along with soaring transportation costs and severe disruptions to global supply chains, are directly impacting China’s foreign trade enterprises.

The China Council for the Promotion of International Trade’s legal department states that the escalation of Middle East tensions shows “short-term shocks concentrated, long-term risks highlighted,” mainly affecting energy trade, import-export logistics, market orders, and settlement security. Energy trade is under pressure, with costs and supplies both affected.

For energy importers, there are risks of oil supply disruptions, especially for companies with long-term cooperation with Iran, Saudi Arabia, and other conflict zones, making order fulfillment more difficult. Meanwhile, rising oil prices directly pass through to downstream industries like petrochemicals, chemicals, and logistics, squeezing profit margins.

On March 27, prices of sulfur, propylene, ethylene, and pure benzene rose by 39%, 37%, 68%, and 43% respectively compared to late February. The soaring costs of petrochemical raw materials are cascading through industries reliant on plastics, fibers, and rubber. Huatai Securities reports that Asian petrochemical chains are generally experiencing margin compression, with rising costs and tightening supply pushing product prices upward. Ethylene and propylene prices are constrained by demand, while aromatic hydrocarbon chains show differentiated performance based on product demand resilience.

If the price transmission in the petrochemical chain is an indirect impact, then rising logistics costs are a more direct shock. After the blockage of the Strait of Hormuz, the freight rates for ultra-large oil tankers surged, and shipping and insurance costs rose in tandem. Estimates suggest overall logistics and shipping costs increased by 30% to 35%. These costs eventually embed into the offshore prices of exported goods. Analysis from First Financial Research Institute indicates that the disruption of Strait of Hormuz shipping, combined with damage to energy facilities, has driven international oil prices and shipping costs sharply higher, spreading along the “energy, logistics, raw materials, manufacturing” chain globally, creating imported inflation and output contraction pressures.

These shocks are exerting dual pressures on China’s exports. On one hand, rising production and logistics costs weaken China’s “Made in China” price competitiveness; on the other, high oil prices drag down global economic growth, leading to shrinking external demand. Huatai Securities estimates that if oil prices stay at $100 per barrel long-term, China’s exports could see slight negative growth.

Guo Sheng Securities’ Chief Economist Xiong Yuan notes that overall, China’s energy industry faces both opportunities and challenges. Policies should be based on the current domestic economic situation, with pragmatic progress, maintaining resolve, focusing on stabilizing growth, expanding domestic demand, and preventing risks. Additionally, proactive reserve policies should be prepared for oil price shocks, external demand fluctuations, and spillover risks in energy, prices, industrial chains, foreign trade, and finance.

The crisis also impacts the energy trade settlement system. China’s bilateral currency settlement cooperation with Iran, Saudi Arabia, Egypt, and others is deepening, partly avoiding dollar settlement sanctions and easing some of the supply chain pressures. However, it cannot fully offset the effects of supply disruptions and rising costs. Against the backdrop of Middle East conflicts, resource-rich countries like Iran, Iraq, and the UAE are actively expanding the use of the RMB for oil settlement to avoid sanctions and exchange rate risks, with market estimates suggesting related shares could surpass 15%.

This crisis is redefining China’s relationship with the global energy system from multiple dimensions. From manufacturing costs to export competitiveness, from petrochemical industry patterns to RMB settlement space, China is actively reshaping its position amid global energy market turbulence.

True energy security is never achieved simply by guarding a strait or stockpiling enough oil; it requires a systemic overhaul from production to consumption, from supply to substitution. The new system China has built over ten years has already proven its resilience in the storm.

Text by: Our reporters Qu Peiran and Wang Lin

Produced by: China Energy News (cnenergy)

Editor: Li Huiying