Gas prices are high right now — an average of roughly a dollar more than they were last year for Americans. But considering that we’re not more than 100 days into the closure of the Strait of Hormuz, which the International Energy Agency called the “most severe oil supply shock in history,” it seems like they should be higher. When the Hormuz crisis began, many analysts were predicting the price of oil would rise to $200 a barrel, which might mean gas in the $6.50 to $7 per gallon range. Instead, oil is currently trading at less than $90 a barrel.
That’s partly thanks to some promising recent diplomatic developments, but it’s never risen higher than around $114, far below the heights it reached after the Russian invasion of Ukraine in 2022. The 1970s-style gas lines that many anticipated have not materialized.
So what’s going on? There are a few explanations. One is that more oil is still leaving the Middle East than many thought possible, via alternative pipelines and via covert means through Hormuz itself. Another is that oil-producing countries that don’t depend on Hormuz, most importantly the US, are ramping up production. Many countries are also still tapping their strategic reserves. But possibly the largest and definitely the most unexpected factor is that the world’s most insatiable consumer of oil has just stopped buying it.
China is normally the world’s top crude oil importer, and it sources much of that oil from Iran and other countries in the Middle East. China’s imports have fallen from around 11.6 million barrels a day to around 7.8 million, the lowest levels since 2017. To put it simply, there are millions of more barrels per day for other countries to import than anyone thought was possible. Good news for every other economy in the world — but what about for China itself?
“If I knew nothing else about what was going on and I was just looking at my data, I would assume there had been a demand collapse on par with the Covid-zero lockdowns,” said Rory Johnston, a Toronto-based oil market researcher, referring to the draconian policies the Chinese government imposed during the pandemic that effectively ground its domestic economy to a halt. “But that’s strange, because I haven’t seen any news about China relocking down its economy.”
China’s economy hasn’t cratered. Quite the contrary: All available data on industrial output, automobile traffic, pollution, and other economic indicators suggests that the country is humming along as normal. In recent years, the Chinese state has made massive investments in green energy and electric vehicles. Those investments have likely helped cushion the blow, but they’re still not enough to account for the numbers we’re seeing.
Instead, we seem to be seeing the results of a longer-term strategy. Back in 2023, many analysts were perplexed by the fact that China was dramatically ramping up its imports of crude oil and its refineries were pumping out dramatically higher amounts of gasoline and diesel, despite the fact that the country’s economy was slowing down. There appeared to be little demand for all that fuel at the time. We may be seeing the fruits of that stockpiling now.
China’s government also hasn’t explained their rationale for cutting imports during the current conflict, nor has it publicly acknowledged that it is. The closest we’ve gotten to an official acknowledgement of what’s happening may have been from US Energy Secretary Chris Wright, who said that China is releasing oil from its strategic petroleum reserve.
The odd thing about that, notes Johnston, is that the strategic reserve tanks in China that are visible to commercial satellites appear to be just as full if not more full than they were before the war. So where’s all their fuel coming from?
The most likely possibility is that China has large underground reserves that are not visible to the outside. The Chinese government has also mandated state-owned commercial companies to maintain their own strategic petroleum stocks. Whatever the case, China simply has a lot more oil on hand than we thought.
How long can China keep this up? Johnston says that’s difficult to say given that estimates of China’s stocks range from half a billion barrels to one and a half billion. But in theory, it could be months.
Why is Beijing doing this?
In theory, it’s possible that when President Donald Trump and Chinese President Xi Jinping met in May, they reached some sort of agreement for China to reduce its imports. After all, Trump is benefiting politically from the choice.
But it seems unlikely that Xi would agree to a policy to underwrite a war against one of its allies, and as unlikely that Trump wouldn’t tell anyone he had extracted that big a concession. More likely, China sees the benefit in preventing an all-out crisis in the countries that are its most important export markets.
Intentionally or not, though, China’s policies may be prolonging the war. Trump is clearly eager to reach a deal to reopen Hormuz, but not desperate enough to agree to major concessions or Iran’s nuclear program or sanctions relief. His urgency might be different if oil were at $150 a barrel rather than $90, putting even more pressure on American consumers during a pivotal election year. For all the attention paid to how Chinese missiles and satellites might be helping Iran’s war effort, that assistance might be outweighed by how its energy policies are helping the US.
Beyond this conflict, China’s policy may have wider strategic implications for China’s growing ability to weaponize its role in the global economy — a field of competition the US long dominated. As Eurasia Group oil analyst Gregory Brew wrote on X, “The world doesn’t have a swing producer any more” — referring to how Saudi Arabia’s oil production capacity once allowed it to almost single-handedly swing global energy markets — ”but it may have a swing consumer.”
In other words, China is intentionally keeping oil prices lower than they would be otherwise. It could in theory pull the rug out and jack up the world’s prices as well.
In part, China is simply also a country that’s traditionally inclined to stockpile stuff, whether it’s oil, strategic metals, or even pork. When it began its oil-buying spree a few years ago, there was some speculation it might be preparing for a major global crisis, namely an invasion of Taiwan.
There’s always been an assumption that the massive disruption to global trade a war over Taiwan would cause constitutes a sort of mutually assured economic destruction that might help dissuade Beijing from acting. But what we’re seeing is that China may actually be more insulated from that kind of disruption — and even more capable of causing it — than we thought.
