China is the world’s largest oil importer and has significantly cut its imports since the start of the Iran war, helping to contain oil price increases. But now China may be ramping up buying again, threatening to exacerbate the global energy crisis. China’s reduction in oil imports by almost a third compared to a year earlier lowered demand, helping prevent oil prices from soaring earlier in the Iran war. Analysts now fear that a pickup in demand from China will raise prices, as signs emerge that China’s oil imports may soon increase. The International Energy Agency (IEA) recently cited procurement efforts and one-off tanker deliveries as hints of “renewed Chinese buying interest.”
China has the world’s largest stockpile of oil, but it does not appear to have used much from the aboveground stores that analysts can monitor via satellite. The U.S. Energy Information Administration estimates that China added an average of 1.1 million barrels per day to its strategic reserves in 2025, pushing stockpiles to nearly 1.4 billion barrels by the end of the year. The IEA estimates China drew down about 41 million barrels from stocks last month, allowing refiners to meet domestic demand without aggressively competing for cargoes. Total oil stocks in China are estimated at around 1.9 billion barrels, enough to cover about 117 days of demand, according to Goldman Sachs. The country’s vast oil stockpile provides a significant cushion. Many believe China can continue to hold off on increasing imports for some time, as its refineries have been processing less oil during the war due to the country’s early ban on oil-product exports. It surpassed the U.S. in refining capacity in 2024.
China, however, approved a large increase in July fuel exports, partially unwinding restrictions imposed in March by allowing private refiners to resume shipments. The action could increase Chinese oil imports at a time when renewed fighting between the United States and Iran has raised oil prices. During the interim peace deal between the United States and Iran in mid-June, Gulf exports recovered to more than 80% of pre-conflict levels in the two weeks after the deal. Recent attacks in the Strait of Hormuz this month have pushed flows back below 50% of normal levels, and attacks by Iran’s proxy Houthis on oil tankers in the Red Sea are causing the global market to be tight again, raising the importance of China’s oil demand to price stability.
China has other resources to reduce its need for oil imports, however. The country can use its coal reserves instead of oil products to make chemicals. China has a coal-to-liquid program which supplements its oil and gas supplies. Having few oil resources of its own, China has reduced its gasoline consumption as it is the world’s largest electric vehicle market, powered by the world’s largest electrical grid, which consumes the world’s most coal, wind, solar and hydroelectric generation. Its extensive high-speed rail network, the biggest in the world, also lessens transportation demand for oil. According to the IEA, this year is likely to be the first time China’s oil consumption will drop significantly since the oil crises of the 1970s and early 1980s.
China’s ability to manage the global oil market during the war by ramping up or down its oil purchases has surprised analysts, given that the country imports most of its oil. Its huge stockpiles gave it the “running room,” which allowed it the flexibility. For decades, OPEC was able to manipulate the oil market. Members of the Organization of the Petroleum Exporting Countries, the oil cartel, have leveraged their significant market share to send prices soaring, as happened in the 1970s, or to allow them to drop, as they did in 2014. But OPEC’s influence has been eroded in recent years by the rapid growth of U.S. and other oil production in the Americas and the recent exit of one of the cartel’s biggest members, the United Arab Emirates.
For now, between the energy still flowing from the Persian Gulf, rising production in other countries, and lower demand from countries like China, the world generally has the oil it needs, as reflected in prices that, for much of the war, have hovered about 7% above prewar levels. However, since petroleum products are the commodity used, not oil, the price of gasoline, diesel, and jet fuel may be more dependent on the world’s refinery situation than on the availability of oil. Refinery margins are high as countries have been shuttering them, limiting capacity to produce petroleum fuels. Within the past year, for example, two refineries closed in California.
Further, wholesale diesel prices soared last week after Russia, one of the world’s biggest exporters, banned overseas diesel sales to preserve supplies at home. Ukrainian drone attacks have severely damaged Russian oil refineries, limiting the country’s ability to turn oil into transportation fuels. Due to damaged infrastructure in the Persian Gulf and Russia, refineries are processing much less oil than usual. That partly explains why petroleum fuels remain more expensive than before the war. Wholesale fuel prices generally foreshadow changes in consumer prices at gas stations, where diesel averaged $5.24 a gallon on July 24, up 3.6% from a week earlier, according to AAA. Gasoline prices averaged $4.10 a gallon on that same day, up 3.1% from a week earlier.
Conclusion
China has been able to reduce its oil import demand since the start of the Iran war by restricting oil to its private refiners and banning petroleum product exports, helping keep oil prices contained. Its huge oil reserves have barely been touched so far, giving it months of an oil cushion to rely on in the coming days. But the prospect of a recovery in Chinese demand, combined with constrained Gulf supplies, particularly since the Houthis may be controlling the oil movements in the Red Sea, could significantly tighten the oil market in the near term, increasing oil prices. Besides oil availability, strained refinery capacity could raise prices for gasoline, diesel, and jet fuel—transportation fuels that the world needs.
For media inquiries, please contact press@ierdc.org.
