China Power | Economy | East Asia

The Strait of Hormuz Is Burning, But China Is Not Panicking

China appears better insulated than most against the energy shocks emerging from the latest Middle East conflict. 

On paper, the ongoing Israeli-U.S. offensives against Iran have turned into a nightmare for many countries due to the concomitant oil and gas crunch. As the factory of the world, China should be no different given roughly half of its crude oil and condensate imports come from the Gulf producers: Iran, as well as Saudi Arabia, Iraq, and others. 

Regarding the blockaded Strait of Hormuz at the center of the world’s attention, about 20 percent of global oil and 20 percent of liquefied natural gas (LNG) trade flows through the chokepoint – with roughly 80 percent of the volume sold to Asia. However, in the weeks since the conflict began on February 28, Beijing has appeared self-assured. 

A few other East Asian economies have had to scramble. To cite just one example: due to its vulnerabilities, South Korea’s stock market has undergone a severe sell-off and the Korean won has fallen to levels not seen since the Global Financial Crisis. In contrast, Chinese markets have remained noticeably calm. Neither China’s stock indices nor its currency have suffered a comparable shock. 

The Energy Fortress Beijing Built

Just as China has been able to put its dominant position in the sale of global rare earths to good use versus its geopolitical rivals, its leaders have also worked meticulously to avoid being at the receiving end of others’ weaponization of strategic resources. Concerning Beijing’s energy security strategy, three things stand out.  

First, when the Israeli-U.S. strikes on Iran began, China was sitting on a massive petroleum reserve, which some analysts estimate to be around 1.2-1.3 billion barrels split between strategic and commercial inventories. That could last up to 100 days (based on 2025 levels). In the first two months of this year, China further increased its crude oil stockpiles – having imported 11.99 million barrels per day (bpd) and drawing 4.42 million bpd from its own domestic sources, making a combined total of 16.41 bpd available for its oil refineries. Beijing has further opted to play it safe by calling for an immediate halt to exporting refined fuel on March 11, while the State Council-directed Sinopec Group is also on the verge of reducing its output by 10 percent.

Second, as part of its integral approach to sustaining its economic activities, China adheres to the diversification of its trade relationships. That is especially true with respect to securing energy supplies. China’s energy mix is diversified – both by fuel and by route. Apart from the Middle East, China imports from Australia, Central Asia and Russia, South America, and Africa. Whereas virtually all the natural gas imported by Japan and South Korea arrive via seaborne routes as LNG – now exposed to missiles, drones, and higher insurance premiums – slightly more than half of China’s gas imports are seaborne, with the rest from overland pipelines such as the Power of Siberia 1 connected to Russia. While not entirely risk-free, China is at least insulated to some degree from the current disruptions to the Strait of Hormuz. 

Third, notwithstanding its de facto blockade of the Strait of Hormuz, Tehran continues to allow crude oil destined for China through the waterway – so much so that some Western governments have taken heed. Beijing’s willingness to trade with what some members of the international community consider “pariah states” helps supplement its aforementioned diversification efforts. Taking the bloodshed in Ukraine since 2022 for example, despite how the European Union and Washington have either banned or reduced their demand for Russian energy supplies, the war has not deterred Beijing, among others, from doing the opposite. 

Asymmetry in the China–Iran Relationship

None of this means the war in Iran has resulted in China being an outright winner. China’s lack of influence in the Middle East is evinced by its customary rhetorical support to Tehran – rather than sending its People’s Liberation Army (PLA) into the fray. Clearly, Beijing’s traditional “non-intervention” policy means it will continue to tread carefully on security issues in the Middle East – even if Beijing and Tehran have entered into a “comprehensive strategic partnership” since 2021.

To be sure, the very diversification strategy cushioning China from potential energy shocks dilutes Tehran’s leverage. While 80 percent of Iranian oil exports are Chinese-bound, Iran only accounts for about 10 percent of China’s oil imports. What is an economic lifeline for Tehran is thus but a small slice of Beijing’s energy portfolio. Data from the U.S. Energy Information Administration also indicate that approximately 90 percent of the Iranian crude oil is absorbed by small, independent Chinese oil refineries – so-called “teapot refineries” – thus China’s major state-owned enterprises have so far not been affected as much.

As things stand, Chinese energy interests in the Middle East are far from Iran-centric. Based on 2024 figures, alongside Iran accounting for around 11 percent of China’s crude oil and condensate imports, Beijing’s healthy trade relations with the Gulf Cooperation Council states entailed comparable trade levels – such as with Saudi Arabia (14 percent), Oman (7 percent), and the United Arab Emirates (6 percent). The remaining 46 percent of overall Chinese oil imports arrive from Russia, the Western Hemisphere, and Africa. Put another way, Iran matters to Beijing – but not so much that China would risk shifting from its prudent foreign policy posture in the Middle East. Even in the unlikely event of regime change in Iran, China may lose a supplier, but not at the cost of the foundation of its overall energy calculus. 

The more serious downside for Beijing concerns its longer-term strategic prospects there. A prolonged war that destroys infrastructure across Iran and its neighbors not only threatens oil flows, but will also have ripple effects for China’s Belt and Road Initiative. Rail and road links from Iran to Turkiye and Central Asia – portions of the westward corridors Beijing hoped would bind the Eurasian economy closer to its own – have been disrupted, if not entirely severed. Other critical infrastructure such as data centers and high tech projects in the region built with Chinese money may also become targets in future conflicts.  

Paradoxically for China, there is the tension of choosing between war and peace. Since the fighting started, the U.S. military has been compelled to significantly increase its buildup in the Middle East. In so doing, the U.S. military is drawing down its resources in the Indo-Pacific such as relocating its Terminal High-Altitude Area Defense (THAAD) missile defense systems from South Korea. This is rattling U.S. allies and reducing the military pressure on Beijing. 

Lest we forget, it was in the wake of 9/11 that a window of opportunity opened for China to grow its comprehensive strength unimpeded, as the U.S. military became distracted by the War on Terror. Should the current administration fail to learn from Iraq and Afghanistan, Beijing stands to benefit again. 

China’s Energy Lesson for a World in Flux  

In Washington and other major European capitals, post-COVID-19 debates about supply chain risks oftentimes defaulted to a language of reshoring and autarky – the dream of making everything at home. Chinese leaders are no different, but they have at the same time “doubled down” on Beijing’s economic integration with the world, adding redundancy as its guiding principle: for every vulnerable route, it builds alternatives. When one strait – whether Hormuz or Malacca – threatens to choke its energy needs, China can turn to pipelines from Russia or Myanmar. Domestic production of natural gas such as shale also cushion any shock.  

Such an approach helps explain why Beijing has thus far been able to weather a war that could have been damaging to its energy security strategy. Although the conflict in Iran again exposes the limits of Chinese influence in a region where U.S. military power still dominates, in the economic realm China for now looks more ready than many of the Western democracies that fear its rise. And for most people around the world, it’s the economic realm that matters more.

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On paper, the ongoing Israeli-U.S. offensives against Iran have turned into a nightmare for many countries due to the concomitant oil and gas crunch. As the factory of the world, China should be no different given roughly half of its crude oil and condensate imports come from the Gulf producers: Iran, as well as Saudi Arabia, Iraq, and others. 

Regarding the blockaded Strait of Hormuz at the center of the world’s attention, about 20 percent of global oil and 20 percent of liquefied natural gas (LNG) trade flows through the chokepoint – with roughly 80 percent of the volume sold to Asia. However, in the weeks since the conflict began on February 28, Beijing has appeared self-assured. 

A few other East Asian economies have had to scramble. To cite just one example: due to its vulnerabilities, South Korea’s stock market has undergone a severe sell-off and the Korean won has fallen to levels not seen since the Global Financial Crisis. In contrast, Chinese markets have remained noticeably calm. Neither China’s stock indices nor its currency have suffered a comparable shock. 

The Energy Fortress Beijing Built

Just as China has been able to put its dominant position in the sale of global rare earths to good use versus its geopolitical rivals, its leaders have also worked meticulously to avoid being at the receiving end of others’ weaponization of strategic resources. Concerning Beijing’s energy security strategy, three things stand out.  

First, when the Israeli-U.S. strikes on Iran began, China was sitting on a massive petroleum reserve, which some analysts estimate to be around 1.2-1.3 billion barrels split between strategic and commercial inventories. That could last up to 100 days (based on 2025 levels). In the first two months of this year, China further increased its crude oil stockpiles – having imported 11.99 million barrels per day (bpd) and drawing 4.42 million bpd from its own domestic sources, making a combined total of 16.41 bpd available for its oil refineries. Beijing has further opted to play it safe by calling for an immediate halt to exporting refined fuel on March 11, while the State Council-directed Sinopec Group is also on the verge of reducing its output by 10 percent.

Second, as part of its integral approach to sustaining its economic activities, China adheres to the diversification of its trade relationships. That is especially true with respect to securing energy supplies. China’s energy mix is diversified – both by fuel and by route. Apart from the Middle East, China imports from Australia, Central Asia and Russia, South America, and Africa. Whereas virtually all the natural gas imported by Japan and South Korea arrive via seaborne routes as LNG – now exposed to missiles, drones, and higher insurance premiums – slightly more than half of China’s gas imports are seaborne, with the rest from overland pipelines such as the Power of Siberia 1 connected to Russia. While not entirely risk-free, China is at least insulated to some degree from the current disruptions to the Strait of Hormuz. 

Third, notwithstanding its de facto blockade of the Strait of Hormuz, Tehran continues to allow crude oil destined for China through the waterway – so much so that some Western governments have taken heed. Beijing’s willingness to trade with what some members of the international community consider “pariah states” helps supplement its aforementioned diversification efforts. Taking the bloodshed in Ukraine since 2022 for example, despite how the European Union and Washington have either banned or reduced their demand for Russian energy supplies, the war has not deterred Beijing, among others, from doing the opposite. 

Asymmetry in the China–Iran Relationship

None of this means the war in Iran has resulted in China being an outright winner. China’s lack of influence in the Middle East is evinced by its customary rhetorical support to Tehran – rather than sending its People’s Liberation Army (PLA) into the fray. Clearly, Beijing’s traditional “non-intervention” policy means it will continue to tread carefully on security issues in the Middle East – even if Beijing and Tehran have entered into a “comprehensive strategic partnership” since 2021.

To be sure, the very diversification strategy cushioning China from potential energy shocks dilutes Tehran’s leverage. While 80 percent of Iranian oil exports are Chinese-bound, Iran only accounts for about 10 percent of China’s oil imports. What is an economic lifeline for Tehran is thus but a small slice of Beijing’s energy portfolio. Data from the U.S. Energy Information Administration also indicate that approximately 90 percent of the Iranian crude oil is absorbed by small, independent Chinese oil refineries – so-called “teapot refineries” – thus China’s major state-owned enterprises have so far not been affected as much.

As things stand, Chinese energy interests in the Middle East are far from Iran-centric. Based on 2024 figures, alongside Iran accounting for around 11 percent of China’s crude oil and condensate imports, Beijing’s healthy trade relations with the Gulf Cooperation Council states entailed comparable trade levels – such as with Saudi Arabia (14 percent), Oman (7 percent), and the United Arab Emirates (6 percent). The remaining 46 percent of overall Chinese oil imports arrive from Russia, the Western Hemisphere, and Africa. Put another way, Iran matters to Beijing – but not so much that China would risk shifting from its prudent foreign policy posture in the Middle East. Even in the unlikely event of regime change in Iran, China may lose a supplier, but not at the cost of the foundation of its overall energy calculus. 

The more serious downside for Beijing concerns its longer-term strategic prospects there. A prolonged war that destroys infrastructure across Iran and its neighbors not only threatens oil flows, but will also have ripple effects for China’s Belt and Road Initiative. Rail and road links from Iran to Turkiye and Central Asia – portions of the westward corridors Beijing hoped would bind the Eurasian economy closer to its own – have been disrupted, if not entirely severed. Other critical infrastructure such as data centers and high tech projects in the region built with Chinese money may also become targets in future conflicts.  

Paradoxically for China, there is the tension of choosing between war and peace. Since the fighting started, the U.S. military has been compelled to significantly increase its buildup in the Middle East. In so doing, the U.S. military is drawing down its resources in the Indo-Pacific such as relocating its Terminal High-Altitude Area Defense (THAAD) missile defense systems from South Korea. This is rattling U.S. allies and reducing the military pressure on Beijing. 

Lest we forget, it was in the wake of 9/11 that a window of opportunity opened for China to grow its comprehensive strength unimpeded, as the U.S. military became distracted by the War on Terror. Should the current administration fail to learn from Iraq and Afghanistan, Beijing stands to benefit again. 

China’s Energy Lesson for a World in Flux  

In Washington and other major European capitals, post-COVID-19 debates about supply chain risks oftentimes defaulted to a language of reshoring and autarky – the dream of making everything at home. Chinese leaders are no different, but they have at the same time “doubled down” on Beijing’s economic integration with the world, adding redundancy as its guiding principle: for every vulnerable route, it builds alternatives. When one strait – whether Hormuz or Malacca – threatens to choke its energy needs, China can turn to pipelines from Russia or Myanmar. Domestic production of natural gas such as shale also cushion any shock.  

Such an approach helps explain why Beijing has thus far been able to weather a war that could have been damaging to its energy security strategy. Although the conflict in Iran again exposes the limits of Chinese influence in a region where U.S. military power still dominates, in the economic realm China for now looks more ready than many of the Western democracies that fear its rise. And for most people around the world, it’s the economic realm that matters more.

James Char is assistant professor with the China Programme and Deputy Coordinator of the Master of Science (Asian Studies) programme at the S. Rajaratnam School of International Studies, at Nanyang Technological University, in Singapore. He is the author of “China, the Global South and the Struggle for Hegemony.”

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