The Uneasy Tandem: How Washington and Beijing Are Quietly Keeping Oil Markets From Collapse

More than 60 days into the US-Israel war on Iran, the world is experiencing what the International Energy Agency has called "the greatest global energy security challenge in history" [1]. Iran's closure of the Strait of Hormuz — the narrow waterway through which roughly 20% of the world's daily petroleum shipments pass — has removed more than 16 million barrels per day from global transit, dwarfing every previous oil shock on record [2]. Brent crude surged from $66 per barrel in January to above $110 in mid-April, and WTI crude sits at $109.76 as of early May, up 87.6% year-over-year [3][4].

Source: FRED / EIA

Data as of May 4, 2026CSV

Yet the price has not spiraled to the $150 or $200 levels that many analysts predicted. A central question now preoccupies energy markets, foreign ministries, and trading floors: are the United States and China actually coordinating to prevent a full-blown oil market collapse — or are two self-interested superpowers simply running in parallel, and how long can that last?

A Supply Shock Without Precedent

The scale of the 2026 disruption has no meaningful historical parallel. The 1973 Arab oil embargo removed 4.5 million barrels per day from global supply — roughly 7% of consumption at the time [5]. The 1979 Iranian Revolution cut 3.9 million bpd [6]. The 1990 Gulf War disrupted 4.3 million bpd [2]. The 2026 Hormuz crisis has, at its worst, disrupted more than 16 million bpd — three to five times larger than any previous shock as a share of global demand [2].

Source: IEA, EIA, Dallas Fed

Data as of May 13, 2026CSV

In early April, shipments through the Strait averaged around 3.8 million barrels per day, compared with more than 20 million bpd in February before the conflict began [7]. OPEC production plunged 27% month-over-month, from 28.7 million bpd to 20.8 million bpd, as Gulf Arab states found themselves unable to export through their primary shipping route [8]. Saudi Arabia's output alone dropped 23%, from 10.1 million bpd to 7.8 million bpd — not because Riyadh chose to cut, but because tanker traffic collapsed under Iranian attacks [8].

The Dallas Federal Reserve projects that a one-quarter closure would raise average WTI prices to $98 per barrel, a two-quarter closure to $115, and a three-quarter closure to $132 [2]. Annualized GDP losses range from 0.2 percentage points for a one-quarter disruption to 1.3 percentage points if it persists for three quarters [2].

Source: EIA, Reuters

Data as of May 13, 2026CSV

The IEA Response and Strategic Reserve Drawdowns

The IEA's 32 member countries unanimously approved the release of 400 million barrels from their emergency reserves — the largest coordinated stock release in the agency's history, more than double the response to the 2022 Russian invasion of Ukraine [9]. The United States has deployed roughly 80 million barrels of a pledged 172 million, drawing the Strategic Petroleum Reserve toward its lowest level since 1982 [10].

But reserves are finite. Morgan Stanley estimates global oil stockpiles dropped by approximately 4.8 million barrels per day between March 1 and April 25, far exceeding any previous quarterly drawdown in IEA records [10]. JPMorgan Chase projects OECD inventories could reach "operational stress levels" by early June and "operational minimum" floors — the bare amount needed for pipeline and terminal functionality — by September [10].

China's Quiet Role: Stabilizer or Free Rider?

China entered the crisis better positioned than almost anyone anticipated. Beijing had been building strategic reserves aggressively throughout 2025, and the EIA estimates China expanded stockpiles by around 1 million barrels per day in 2026, with national oil companies constructing at least 169 million barrels of new storage capacity in 2025–2026 [11]. By some estimates, China held over three times the strategic oil reserves of the United States when the war began [12].

The most concrete Chinese contribution to market stabilization has been a significant, unannounced cut in oil imports. Beijing has slashed purchases by roughly 25% from prewar levels [13]. The effect has been counterintuitive: more crude is available to the wider market because China is drawing from its own enormous stockpile rather than competing for scarce seaborne cargoes. This has helped keep benchmarks near the $100-per-barrel level rather than spiking further [13].

China's ability to absorb the shock also reflects structural factors. CNBC reported that Beijing's decades of energy diversification — including massive EV adoption, expanded nuclear capacity, and increased Russian pipeline oil — have given it a buffer that neighbors like Japan, South Korea, and India lack [14]. China's annual trade with Gulf states (Saudi Arabia, the UAE, Qatar, Kuwait, Oman, and Bahrain) totals approximately $300 billion, dwarfing its $10–40 billion annual trade with Iran [15]. That disparity helps explain Beijing's restrained response to Tehran's suffering.

Coordination or Coincidence?

The word "coordination" implies a level of institutional cooperation between Washington and Beijing that the evidence does not clearly support.

On one hand, the White House has confirmed that "high-level talks" occurred between US and Chinese officials during negotiations around a two-week ceasefire [13]. Treasury Secretary Scott Bessent has urged China to "join us in this international operation" to reopen the Strait of Hormuz [16]. China worked behind the scenes to convince Iran to hold peace talks with the US in Pakistan [16]. The upcoming Trump-Xi summit in Beijing on May 14–15 has oil policy as a central agenda item [17].

On the other hand, the relationship remains deeply adversarial on the specific mechanics. In April, the US Treasury sanctioned Chinese refinery Hengli Petrochemical for purchasing billions of dollars worth of Iranian oil [16]. China's Ministry of Commerce responded by ordering companies not to comply with US sanctions against five refiners, invoking for the first time a law allowing retaliation against sanctions it considers unlawful [16]. China continues to import well over a million barrels per day of Iranian crude [18].

Analysts at Brookings describe the dynamic as "transactional rather than cooperative." Trump reportedly asked Xi to refrain from arming Iran, and Xi appears to have complied — but Beijing simultaneously provided "indirect support — intelligence and dual-use materials" within deniability thresholds [15]. A CNN analysis noted that China's involvement in mediation has been "mostly indirect and invisible, reflecting its reluctance to charter uncertain territories with unpredictable outcomes" [18].

The skeptical case is straightforward: both countries want oil prices lower, for different reasons. The US faces midterm political pressure from gas prices that have exceeded $5 nationally and $8 in some states [5]. China's import bill rises by roughly $35–40 billion annually for every $10-per-barrel increase, straining an economy already struggling with deflationary pressures [11]. These are parallel interests, not coordinated strategy. The "coordination" narrative may be a post-hoc frame applied to two actors whose short-term incentives happen to align — an alignment that could evaporate the moment interests diverge, whether over Taiwan, nuclear talks with Tehran, or sanctions enforcement.

Who Bears the Burden: The Global South Gap

The crisis has exposed a stark asymmetry in the global capacity to absorb energy shocks. Over 70% of the world's population lives in countries that lack sufficient strategic petroleum buffers, according to Rystad Energy [19]. The IEA requires its member states to maintain 90 days of import coverage — a standard met by the US, Japan, South Korea, and most of Europe. But the vast majority of developing nations fall far short.

Source: IEA, Al Jazeera, Rystad Energy

Data as of May 13, 2026CSV

Pakistan's Federal Energy Minister reported the country holds crude reserves for merely five to seven days [19]. Indonesia, Bangladesh, and Vietnam estimated their stocks cover 23 days to one month [19]. The Asian Development Bank downgraded 2026 growth projections for developing Asian economies to 4.7%, down from 5.1%, reflecting the energy fallout [19]. The World Bank's April 2026 Commodity Markets Outlook warned that developing-economy inflation would average 5.1% in 2026 — a full percentage point above pre-war forecasts [20].

The burden falls disproportionately on nations that lack dollar-denominated hedging capacity, foreign exchange reserves to absorb higher import costs, and the political infrastructure to manage energy rationing. Strategic petroleum reserves are expensive to build, fill, and govern; for countries juggling debt servicing, food imports, and electricity subsidies, holding millions of barrels in storage is a luxury [19].

Kharg Island: The Escalation Tripwire

On March 13, the US Air Force conducted a large bombing raid on Kharg Island — the offshore terminal that handles up to 90% of Iran's crude exports — but deliberately avoided oil and gas infrastructure, targeting more than 90 military sites instead [21][22]. The distinction matters: Kharg Island represents a single point of failure for Iran's petroleum revenue. Its extended piers, concentrated pipeline networks, and large storage facilities are acutely vulnerable to naval action [23].

President Trump subsequently threatened to "immediately reconsider" striking the oil infrastructure unless Iran ceased its Hormuz closure and attacks on vessels [22]. Iran's armed forces warned that if Kharg's oil infrastructure were hit, energy infrastructure belonging to firms working with the United States would "immediately be destroyed and turned into a pile of ashes" [22].

Destruction of Kharg's oil infrastructure would take years to rebuild, leaving Iran deprived of its primary revenue source [23]. But it would also remove approximately 1.5–1.8 million bpd of Iranian exports from global supply — crude that, even under sanctions, was flowing to Chinese refiners through alternative channels [24]. There is no public evidence that existing US-China communication channels include explicit triggers, red lines, or contingency protocols for an escalation to Kharg Island strikes.

The Petroyuan Question

The crisis has accelerated a separate, structural challenge to the dollar-denominated oil trade. Iran has imposed a de facto toll regime on commercial vessels transiting the Strait of Hormuz, charging fees in Chinese yuan — a direct challenge to dollar hegemony in energy markets [25]. At least two vessels had made yuan-denominated transit payments as of late March, according to Lloyd's List reporting [25].

Iran's embassy in Zimbabwe publicly called for adding the "petroyuan" to global oil markets [25]. China's Shanghai International Energy Exchange has been processing yuan-denominated crude futures since 2018, and Chinese purchases of Iranian oil are settled entirely in yuan, processed through the mBridge platform, bypassing SWIFT and the US banking system [26].

But the structural significance remains contested. Among OPEC producers, appetite for pricing oil in yuan is "almost nil," according to market analysts [27]. Gulf states have not meaningfully engaged with the petroyuan concept; Saudi Arabia has experimented with yuan payments for infrastructure projects but continues to price crude in dollars [27]. Yuan-denominated trade accounted for 3.7% of global cross-border settlements in 2024, up from under 1% in 2012 — a trend line, but not a revolution [25]. As one economist noted, far-reaching de-dollarization would require Gulf state participation, which has not materialized [25].

Saudi Arabia's Spare Capacity: Necessary but Insufficient

Before the crisis, OPEC+ held approximately 3.5 million bpd in spare capacity, concentrated in Saudi Arabia and the UAE [28]. Under normal circumstances, this would be a meaningful buffer. But the Hormuz closure rendered much of it irrelevant: Saudi Arabia cannot pump oil it cannot ship. The kingdom's production dropped not because of policy, but because tanker traffic through the Strait plunged [8].

OPEC+ agreed to a modest 206,000 bpd production increase in early March — a fraction of what was debated, and largely symbolic given the physical constraints on export [28]. Saudi Arabia does maintain a limited pipeline capacity to the Red Sea via the East-West Pipeline (Petroline), capable of moving roughly 5 million bpd, but this is insufficient to replace Hormuz volumes and involves its own security considerations given Houthi activity in the region.

What Price Stabilization Actually Depends On

Attributing the relative price stability — crude near $100 rather than $150 — to any single factor is difficult. Multiple forces are in play simultaneously: the 400-million-barrel IEA reserve release [9]; China's voluntary import reduction [13]; Saudi pipeline alternatives; weakening global demand expectations amid recession fears; and speculative positioning by commodity traders betting on a Hormuz reopening before inventories reach critical levels.

The contribution of "US-China coordination" per se is hard to isolate. What exists is a set of parallel unilateral actions — US reserve releases, Chinese stockpile drawdowns, separate diplomatic channels to Tehran — that happen to push in the same direction. Whether this constitutes coordination in any meaningful institutional sense, or merely the predictable behavior of two large economies acting in self-interest, remains an open question.

Second-Order Consequences

If the crisis effectively legitimizes China as a co-manager of global energy security — even informally — the geopolitical implications extend well beyond oil prices. A China that is seen as indispensable to energy market stability gains standing to demand a seat at governance tables currently dominated by the IEA, the G7, and Washington's Gulf partnerships.

The Trump-Xi summit on May 14–15 will test this dynamic directly [17]. Analysts at the Council on Foreign Relations argue that China enters the summit with the upper hand: Beijing's oil stockpile gives it leverage, its diplomatic channels to Tehran make it relevant, and Washington's need for oil price relief before the midterm elections creates urgency that Beijing can exploit [29]. CSIS analysts, however, caution that near-term outcomes are likely limited to "de-escalation signals and support for diplomacy, rather than dramatic public agreements" [30].

The longer-term question is whether the crisis reshapes the financial architecture of the oil trade. Gulf states remain the decisive variable. So long as Saudi Arabia, the UAE, and other major exporters continue pricing crude in dollars, the petroyuan remains marginal. But if the Hormuz closure and the war demonstrate that Washington's security guarantees carry unacceptable costs, the calculus in Riyadh and Abu Dhabi may shift — not overnight, but over a period of years [31].

The Limits of the Evidence

Several important uncertainties should be acknowledged. The precise size of China's strategic petroleum reserves remains a state secret; estimates range widely [12]. The degree of back-channel communication between Washington and Beijing on energy policy is, by definition, not fully visible. Whether China's import cuts represent a deliberate stabilization strategy or simply reflect weakening domestic demand is debated by analysts [14][15]. And the future trajectory of the conflict — including the possibility of strikes on Kharg Island's oil infrastructure, which would fundamentally change the supply picture — remains unpredictable.

What the evidence does support is that both the United States and China are taking actions that, in aggregate, are moderating the worst-case price scenario. Whether they are doing so together, in parallel, or despite each other is a distinction that may matter less to the Pakistani family paying record fuel prices than to the diplomats assembling in Beijing this week.