China Quietly Controls World Oil Reserves, For What Purpose?

Before the United States attacked Iran, Beijing had quietly spent years and tens of billions of US dollars amassing the world’s largest oil reserves. Now, with the conflict expected to be prolonged, the massive stockpile has given China significant power over global oil markets while serving as a critical new defensive shield against Western intervention.

Citing the Wall Street Journal, China’s oil reserves last year were estimated to be nearly 600 million barrels larger than those of the United States. The stockpile allowed Beijing to drastically cut its oil imports when war broke out, successfully curbing global oil price spikes and securing its own economy from shocks.

This success serves as a major proving ground for President Xi Jinping, who continues to fortify his country against the US and its allies. For decades, Chinese leaders have been deeply concerned about high dependence on imported crude oil, much of which transits through narrow straits that could easily be blocked by Western militaries in a conflict.

The Iran crisis has now proven that China’s iron-fisted energy policy has given Beijing a key tool that could be used in the event of a war over Taiwan. Researchers from a think tank under the auspices of state-owned China National Petroleum (CNPC) highlighted the importance of this energy readiness.

“Against the backdrop of a world entering a new period of turbulence and transformation, localised regional conflicts are no longer confined to specific locations. China’s energy sector must maintain bottom-line thinking and extreme scenario planning,” the researcher stated.

This oil stockpile, combined with an unexpectedly rapid shift to renewable energy, has successfully made China the most powerful swing buyer in the global energy market. Indeed, China’s crude oil imports fell aggressively by 23% in the March to July period compared to the previous year.

Erica Downs, a scholar at Columbia University’s Center on Global Energy Policy, revealed how confidence flowed within China when the crisis erupted.

“Almost from day one there was a feeling that, ‘We can manage this. We don’t need to panic’,” she said.

In the future, this power will certainly be used in clashes with the US, such as potential escalation over Taiwan. The majority of China’s oil imports pass through the Strait of Malacca, which shares the same fate as the Strait of Hormuz in the Middle East as a major chokepoint that could be sabotaged by the US.

Michal Meidan, head of China energy research at the Oxford Institute for Energy Studies, asserted that Beijing’s vulnerability has now changed dramatically.

“Oil is not the Achilles heel we thought it was. I think many people assumed China was very, very vulnerable to oil supply disruptions. It turns out it is not,” she stressed.

Although China has never published the exact size of its strategic reserves, analysts estimate the total reaches 1 billion to 1.4 billion barrels, equivalent to about 120 days of imports. Starting in 2024, China accelerated its stockpiling to 1.2 million barrels per day, utilising a “shadow fleet” to snap up discounted oil from sanctioned Russia and Iran.

The use of these reserves accounts for about half of China’s recent import decline. Other defensive measures include restrictions on oil product exports, with China’s petrol exports reportedly plunging 93% in the second quarter, diesel exports falling by a quarter, and jet fuel halving.

On the other hand, China has also been preparing for years by expanding its renewable energy sector, which now accounts for about two-fifths of total national electricity generation. Additionally, half of all new cars sold in China this year are new energy vehicles (NEVs).

This has led to a 2% decline in road traffic while rail mobility rose 4%. Although the strategy appears flawless, the aggressive approach is not without economic risk. China, which previously relied on imports for 70% of its crude oil supply, certainly cannot keep suppressing imports forever without sacrificing growth.

Tom Reed, head of oil market analysis at Argus Media, highlighted the bitter consequences of the policy for China’s refining business.

“Restricting exports is indeed a lever China can pull at any time, but it still carries economic costs,” he said.

This fact was confirmed by Larry Hu, chief China economist at Macquarie, who estimated that 90% of the slowdown in China’s industrial production in the second quarter was closely linked to the oil and petrochemical industry chain due to high prices and collapsing demand.