Experts cautioned that the turmoil in the Middle East is poised to draw China nearer to Russia, particularly as Beijing faces the possible cessation of inexpensive Iranian petroleum deliveries and protracted instability within energy sectors.
As the globe’s foremost crude oil and natural gas purchaser, China sources 13 percent of its raw petroleum imports from Iran. Collectively, a significant portion—one-third of its oil and a quarter of its gas imports—transits through the Strait of Hormuz, where shipments have virtually ceased following US-Israeli assaults on Iran, which plunged the area into disarray.
With hostilities extending throughout the Middle East, Beijing encounters an unparalleled challenge to its sustained endeavors to bolster economic stability and fortify its resilience against sudden energy supply disruptions.
According to specialists and sector professionals, the administration led by Chinese paramount leader Xi Jinping would likely prioritize cultivating stronger connections with Vladimir Putin’s Russia, notwithstanding Beijing’s reservations concerning excessive dependence on its northern counterpart. Russia presently stands as China’s primary supplier of raw petroleum, contributing to 20 percent of its total imports.
“A significant consequence of this situation will be the strengthening of energy relationships with Russia—encompassing both crude oil and natural gas,” remarked Neil Beveridge, head of Bernstein’s China energy research in Hong Kong.
He further commented, “Should Iran transition into a more Western-aligned nation, or if it were perceived to remain volatile for an extended period, it would further cement the partnership between Russia and China.”
On Tuesday, China’s foreign ministry denounced the US-Israeli attacks, imploring “all involved entities to promptly halt military actions, prevent an escalation of hostilities, and ensure the security of the Strait of Hormuz.”
It additionally stated: “China intends to implement requisite actions to protect its own energy stability.”
For many years, China has procured substantial volumes of Iranian crude, a connection that sustained Tehran and provided autonomous Chinese processing plants, referred to as teapots, with reduced-price commodities frequently re-designated as “Malaysian blended oil” to circumvent US embargoes.
Alicia García-Herrero, chief economist for Asia-Pacific at the French investment bank Natixis, asserted that the US-Israeli military offensive targeting Iran held “significantly greater importance” for China’s energy sector than the US seizure of Venezuelan leader Nicolás Maduro in January. Venezuela merely comprised approximately 4 percent of China’s maritime crude imports.
She further noted that Putin could compel Beijing to offer increased compensation for Russian oil and gas. “China’s current standing is less robust.”
Certain initiatives are presently being implemented. An anonymous petroleum trader employed by a state-controlled corporation in the eastern Chinese port of Ningbo disclosed that China’s major oil companies have been augmenting Russian consignments over recent weeks. The trader additionally highlighted intentions by the state oil conglomerate CNPC to reactivate a idled oil refining facility in Dalian, situated in north-eastern China, which would enhance the capability to process additional Russian imports.
Looking ahead, the trader indicated the advent of Arctic commercial pathways as glacial ice recedes, which would establish swifter and more economical maritime routes for petroleum through Europe and elevate quantities from Russia.
Experts suggested that Beijing might also contemplate expediting proposals to construct the Power of Siberia 2 pipeline, designed to transport natural gas from north-western Russia across Mongolia into China. This colossal pipeline, costing billions, was anticipated to be finalized by the early 2030s.
More promptly, specialists indicated that Xi’s government would ponder deploying petroleum stockpiles, especially as the Brent global crude oil standard spiked by as much as 17 percent this week, nearing $85 per barrel.
The volume of China’s petroleum reserves, encompassing both the official Strategic Petroleum Reserve and commercial inventories, remains undisclosed but is approximated to range from 1.1 billion to 1.4 billion barrels of crude.
This quantity could potentially satisfy roughly 140 days of internal oil import requirements and is almost twice the amount observed a decade prior, following Beijing’s directive to substantially augment the reserve over the last year.
Michal Meidan, who directs China energy research at the Oxford Institute for Energy Studies, stated that although several months of turmoil might be necessary to jeopardize oil provision, the financial repercussions stemming from elevated oil costs would be “instantaneous.”
“Is this about five days of oil at $100 [per barrel] or a month at $90? China possesses the capacity to absorb such impacts. The crucial query revolves around the SPR — will they begin utilizing it as a means to alleviate the pricing consequences?”
Given the ambiguity surrounding the schedule of Middle Eastern deliveries, experts suggested that certain Chinese refining facilities would curtail operational speeds.
Ye Lin, an Asia petroleum market analyst at Rystad Energy, mentioned that Beijing might find reassurance in the substantial provisions held by corporations and state-affiliated enterprises, alongside almost unprecedented consignments from Russia and Iran presently in transit.
However, she appended that Beijing would be investigating methods to diminish its dependence on imports originating from the Middle East. She declared, “China requires greater preparation.”
García-Herrero from Natixis indicated that Beijing is currently examining every possible route for broadening its sources.
Regarding China, the conflict with Iran highlights the criticality of a decades-spanning endeavor to attain energy independence through the widespread electrification of its transportation and industrial foundations.
Cui Jingbo, co-director of the Environmental Research Center at Duke Kunshan University close to Shanghai, noted that this strategy had already spurred a rapid expansion in solar and wind power, battery accumulation, and electric automobiles.
Currently, attention is shifting towards employing China’s plentiful and economical renewable power sources and biofuels to de-carbonize its extensive manufacturing industry.
He remarked, “This constitutes a nationwide strategic approach. The government has foreseen the likelihood of a localized confrontation [in the Middle East].”
Further contributions by Cheng Leng in Beijing. Data presented visually by Haohsiang Ko in Hong Kong