As the United States and Iran haggle over reopening the Strait of Hormuz and restoring Persian Gulf oil exports, China, the world's largest oil importer, is not expected to rapidly increase its purchases in the region.
If normal traffic through the strait fully resumes in the coming weeks, numerous oil tankers carrying oil bound for China that were stranded in the Persian Gulf during the war would get moving again. Its eventual arrival at Chinese ports is likely to result in a temporary increase in deliveries.
China is in a very different position to much of the world, which is emerging from the war in Iran with depleted oil supplies.
The crude oil reserves of the country's state energy companies remain almost full. Beijing appears to have failed to tap into its vast strategic reserves, and Chinese refinery storage tanks are overflowing with gasoline, diesel and other refined products.
China reduced its daily oil imports by about a third during the war. The pullback, largely driven by rising prices, helped relieve some of the upward pressure on global oil markets caused by the near-complete closure of the Strait of Hormuz.
China was able to reduce imports so drastically in part because it had been buying more oil than it needed before the war. For years, it built up inventories when prices were low as part of a broader effort to strengthen national self-sufficiency and improve its ability to withstand supply disruptions.
China also imported additional oil to reduce its trade surplus. In recent years, Beijing has increasingly deposited excess foreign exchange earnings in reserves of raw materials such as oil rather than in offshore bank deposits or Treasury bonds, after seeing Western governments freeze Russia's foreign assets following its invasion of Ukraine four years ago.
Few analysts expect China to quickly return to its previous pace of imports, particularly because global oil prices have yet to fall to their pre-war levels with Iran.
“I would expect Chinese oil companies to remain price sensitive and increase their purchases gradually,” said Philip Andrews-Speed, a long-time China oil specialist at the Oxford Institute of Energy Studies.
Chinese companies kept their refineries running throughout the war by tapping into their vast corporate crude oil reserves. But demand in China for gasoline, diesel, jet fuel and other refined products appears to have weakened as prices rose and households and businesses became cautious about fuel consumption. Gasoline car sales plummeted in April and May.
At the same time, the Chinese government halted most exports of refined products this spring to ensure adequate domestic supply. The move contributed to serious shortages elsewhere in Asia, particularly in developing countries with limited refining capacity. China will overtake the United States in 2024 to become the world's largest oil refiner and is typically a major supplier of refined fuels to neighboring countries.
The combination of weak domestic demand and halted exports has left storage tanks so full of gasoline, diesel, jet fuel and other products that oil companies have little incentive to buy and process additional crude, analysts said.
“I don't expect China's crude oil imports to structurally recover to pre-war levels any time soon,” said Muyu Xu, senior oil analyst at data service Kpler.
Imports could increase if Beijing suddenly decided to allow unrestricted exports of refined products that are now in short supply elsewhere. But China has long taken a cautious approach to energy policy. Uncertainty also remains about how quickly any mines Iran may have placed in the strait can be removed and whether the US-Iran deal will hold. The main provisions of the agreement last only 60 days.
“The core risk of conflict in the region is not eliminated,” said David Broadstock, partner and oil analyst at the Lantau Group, an East Asian energy consulting firm.
China's Foreign Ministry has welcomed the agreement and the possible reopening of the Strait of Hormuz, although it has offered few indications of how Beijing might adjust its energy policies. “The early resumption of safe and free passage through the strait serves the interests of all parties,” ministry spokesperson Lin Jian said at a June 16 briefing.
The closure of the Strait of Hormuz had disrupted much of China's oil supply, not only from Iran but also from other Persian Gulf producers, including Saudi Arabia and Kuwait.
However, the terms of the 60-day deal between Washington and Tehran also remove much of the incentive for China's small independent refiners to continue purchasing large volumes of Iranian oil.
The agreement requires the United States to work with other countries and the United Nations to remove international sanctions on Iranian oil exports. If that happens, China's refiners could lose the $3 to $10 per barrel discounts they have enjoyed by purchasing Iranian crude despite international sanctions.
Those discounts generated savings worth several hundred million dollars a month for Chinese refiners. Before the strait closure, China bought more than 90 percent of Iran's oil exports, or more than 1.5 million barrels per day, according to Kpler estimates.
Oil sales to China have accounted for 6 percent or more of the economies of Iran and Russia in recent years. Western governments have long argued that such purchases have helped Iran finance proxy forces in Lebanon, Iraq, Syria and Yemen and have allowed Russia to finance its war in Ukraine.
Beijing, however, maintains that it is not subject to many Western restrictions on Iranian and Russian oil because they were not approved by the United Nations. Russia and China have repeatedly used their positions as permanent members of the UN Security Council to block such measures, maintaining that trade and engagement are more effective than sanctions in addressing issues such as Iran's nuclear program.
Xinyun Wu contributed to the research.
