China Confronts Mounting Energy Crisis from Iran War

Three weeks into the U.S.-Israeli military campaign against Iran, the world's largest energy consumer is facing its most severe supply disruption in decades. But the story of China's confrontation with this crisis is not simply one of vulnerability — it is a story of how a decade of strategic preparation is colliding with a geopolitical earthquake that no amount of planning could fully anticipate.

Before Operation Epic Fury began on February 28, China received roughly 5.35 million barrels of oil per day through the Strait of Hormuz [1]. That figure has collapsed to approximately 1.22 million barrels daily — all of it coming from Iran, which has selectively allowed Chinese-flagged vessels to transit the waterway while blocking virtually all other commercial shipping [2]. The arithmetic is stark: China has lost more than 75% of its Hormuz-dependent oil supply almost overnight.

The Scale of the Problem

China imports approximately 70% of its crude oil, and roughly half of those imports historically transit the Strait of Hormuz [3]. Iran alone accounted for 13% of China's crude imports in 2025, with Venezuela supplying another 4% — and Venezuelan supply was already disrupted following political upheaval in January [3]. The country consumed 27% of global energy in 2025, making it by far the world's largest energy consumer and the nation with the most at stake as the strait remains effectively closed.

The oil price shock has been dramatic. WTI crude surged from approximately $67 per barrel in late February to over $94 by March 9, a roughly 40% increase in less than two weeks [4]. Brent crude briefly topped $110 before settling around $100, levels not seen since the aftermath of Russia's 2022 invasion of Ukraine [5].

Source: FRED / U.S. Energy Information Administration

Data as of Mar 9, 2026CSV

But oil is only part of the picture. Qatar, which shut down several gas facilities amid the conflict, accounts for roughly 20% of global LNG exports [3]. China sourced about a quarter of its LNG imports from Qatar in 2025 [3]. Spot LNG prices surged from $10.70/MMBtu on February 27 to $25.39/MMBtu by March 3 — a 137% increase in four days [6].

Why China Is Better Positioned Than Its Neighbors

Despite the severity of the disruption, multiple analysts have argued that China is better equipped to absorb this shock than virtually any other major Asian economy. The reasons are structural, not accidental.

Strategic reserves. As of March 2, China held approximately 1.39 billion barrels of oil in storage, according to geospatial analytics firm Kayrros — enough to cover roughly 120 days of net crude imports at 2025 levels [2]. This represents arguably the largest emergency stockpile in the world, built up aggressively over the past several years as Beijing anticipated exactly this kind of supply disruption.

Coal dominance. Sixty percent of China's energy consumption still comes from domestically produced coal [3]. Oil and natural gas account for just 4% of China's power generation mix — far below the 40-50% share seen in many Asian economies [7]. This means China's electricity grid, the backbone of its industrial output, is largely insulated from the Hormuz crisis.

Renewable energy surge. China added 430 gigawatts of wind and solar capacity in 2025 alone [7]. For the first time, growth in renewables surpassed the rise in total power consumption, and coal-power output actually decreased 1.6% [7]. Electric vehicles outsold conventional cars in China for the first time in 2025, displacing an estimated one million barrels per day of implied oil demand [8].

Pipeline alternatives. Russia has emerged as China's single largest oil supplier, accounting for 17.5% of crude imports in 2025 — and those supplies arrive by pipeline and overland routes entirely insulated from maritime chokepoints [9]. The crisis has already accelerated negotiations over the Power of Siberia 2 natural gas pipeline, a 2,600-kilometer project that would carry up to 50 billion cubic meters of Russian gas annually from the Yamal Peninsula to northern China [10]. Beijing's 2026-2030 development blueprint explicitly calls for advancing "preparatory work on the central route of the China-Russia natural gas pipeline" — language widely interpreted as confirming the project's acceleration [10].

The Pain China Cannot Avoid

Yet for all these buffers, China cannot escape the energy shock entirely. The disruption hits at a particularly vulnerable moment: China's economy was already struggling with deflationary pressures, a prolonged property sector downturn, and tepid consumer spending.

Rising energy costs feed directly into production costs for steel, chemicals, and electronics — the backbone of China's export manufacturing sector [5]. Higher input costs either squeeze margins or get passed on to global buyers already contending with inflation, eroding the price competitiveness that underpins China's manufacturing dominance.

In the first two months of 2026, Chinese oil imports surged 16% as traders rushed to build stockpiles in anticipation of disruption [5]. But stockpiling at $90-100 per barrel is vastly more expensive than the sub-$70 prices that prevailed in January, straining both state and commercial balance sheets.

The LNG disruption, while less existential than the oil crisis, arrives at a critical juncture. Although the end of the winter heating season reduces immediate demand pressure, China's industrial gas consumption — particularly for chemicals and fertilizer production — remains substantial. Pipeline gas from Russia and Central Asia provides a buffer, but those supplies cannot be rapidly scaled to replace lost LNG volumes [6].

Source: GDELT Project

Data as of Mar 18, 2026CSV

Iran's Yuan Gambit and China's Awkward Position

Perhaps the most geopolitically consequential dimension of this crisis is Iran's offer to allow tanker passage through the Strait of Hormuz — but only for cargo traded in Chinese yuan rather than U.S. dollars [11]. If formalized and adopted by energy importers, this arrangement would represent what analysts have called the most significant challenge to the petrodollar system in its fifty-two-year history [12].

For Beijing, the proposal is a double-edged sword. On one hand, it advances China's long-standing goal of internationalizing the yuan and reducing global dependence on the dollar-denominated financial system. On the other hand, it puts China squarely in Washington's crosshairs at a moment when President Trump has already demanded that Beijing send warships to help reopen the strait and has postponed a planned Xi-Trump summit, citing the conflict [1].

Chinese analysts have publicly urged caution. The South China Morning Post reported that Beijing-linked policy advisers worry the yuan-for-oil arrangement could expose Chinese banks and companies to U.S. secondary sanctions while providing only marginal practical benefit [13]. The operational challenges are also significant: verifying currency settlement in real-time across complex shipping arrangements remains technically difficult [11].

Still, some Chinese-flagged vessels have successfully transited the strait, and Iran has loaded approximately 1.5 million barrels of crude daily in March, with China as the primary — and in many cases sole — customer [2]. This selective access has prompted accusations from Washington that Beijing is profiting from a crisis it has done nothing to resolve, while some Western analysts have described the arrangement as a humiliation for U.S. military power [14].

The Comparative Picture: China vs. Its Asian Rivals

Where China's crisis is severe but manageable, the situation for Japan, South Korea, and Taiwan is approaching catastrophic. These nations lack China's strategic depth: no domestic coal base of comparable scale, no pipeline connections to alternative suppliers, and far greater dependence on LNG imports that transit the Strait of Hormuz.

Japan and South Korea together import roughly 5 million barrels of oil per day from the Persian Gulf, and neither maintains strategic reserves on the scale of China's stockpile [15]. Taiwan, which imports virtually 100% of its energy, faces an existential supply crisis that has prompted emergency rationing discussions [15].

The Atlantic Council noted that "a crisis that affects LNG could end up advancing China's strategic interests" precisely because China's diversified supply base — including pipeline gas from Russia, Central Asia, and Myanmar — gives it options that its maritime-dependent competitors simply do not have [16].

This asymmetry is already reshaping regional dynamics. South Korea and Japan face a stark choice: accept yuan-denominated trade to secure Hormuz passage, seek costlier rerouting around Africa, or increase their already heavy dependence on spot LNG markets where prices have more than doubled [11].

The Long Game

The Iran war may prove to be the event that validates — and accelerates — China's energy transition strategy. Beijing's massive investments in renewables, electric vehicles, and domestic coal have not eliminated its dependence on imported hydrocarbons, but they have reduced that dependence to the point where a supply shock of this magnitude, while painful, is survivable.

China's oil demand actually declined in 2024 for the first time in twenty years, driven primarily by electric vehicle adoption [8]. The country's energy self-sufficiency rate was projected to reach 84.6% in 2026 even before the war [17]. Each EV sold, each solar panel installed, each kilometer of pipeline connected to Russian gas fields incrementally reduces Beijing's exposure to exactly the kind of maritime chokepoint crisis now unfolding.

The more immediate question is whether the crisis will be short enough for China's reserves and alternatives to absorb the shock without triggering a broader economic downturn. At 120 days of import coverage, China has until roughly early July before its strategic and commercial stockpiles face depletion at current draw rates — assuming no additional supply reaches the country. Every week the Strait of Hormuz remains closed erodes that buffer.

The crisis has also demolished any remaining illusion that energy security is a problem that can be solved purely through markets and trade. For China, the lesson is that its decade-long bet on diversification, electrification, and strategic stockpiling was directionally correct — but that in a world where great-power conflict can shut down 20% of global oil supply in a single day, there is no such thing as enough preparation.