While the world scrambles for oil, China sits on full tanks

While the United States and Iran engage in complex negotiations over the Strait of Hormuz and potential oil export restorations, China, the world's largest oil importer, is poised to maintain a cautious approach to its purchases from the region. Even if normal traffic through the strait resumes soon, any immediate surge in deliveries to Chinese ports from stranded tankers is expected to be temporary.

China finds itself in a unique position compared to much of the world, which faces depleted oil supplies after the recent conflict. The country's state-owned energy companies report nearly full crude stockpiles. Furthermore, Beijing appears to have refrained from tapping into its vast strategic reserves, and storage tanks at Chinese refineries are brimming with gasoline, diesel, and other refined products.

During the conflict, China significantly reduced its daily oil imports by approximately one-third. This pullback, largely influenced by higher global prices, played a role in alleviating some of the upward pressure on international oil markets caused by the near-complete closure of the Strait of Hormuz. China's ability to sharply cut imports stemmed partly from its prior strategy of purchasing more oil than immediately needed.

For years, China has been accumulating inventories during periods of low prices as part of a broader strategy to enhance national self-reliance and bolster its resilience against potential supply disruptions. Additionally, China imported extra oil to help reduce its trade surplus. In recent years, Beijing has increasingly opted to store excess foreign exchange earnings in commodity stockpiles, such as oil, rather than in overseas bank deposits or Treasury bonds, particularly after observing Western governments freeze Russia's foreign assets following its invasion of Ukraine four years ago.

China's Ministry of Foreign Affairs has welcomed the potential reopening of the Strait of Hormuz, though it offered little specific indication of how Beijing might alter its energy policies. Ministry spokesperson Lin Jian stated at a briefing on June 16 that the "early resumption of safe and free passage through the strait serves the interests of all parties."

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Early resumption of safe and free passage through the strait serves the interests of all parties.