China has emerged as the biggest shock absorber in global oil markets during the Iran war, temporarily shifting market power away from traditional producers such as OPEC, according to an analysis by The Economist. The key change is not that China has become a major oil producer, but that its enormous buying power, strategic stockpiles and state-controlled demand have allowed it to influence prices from the demand side.
The disruption to the Strait of Hormuz, through which roughly one-fifth of global oil output normally passes, initially threatened to remove about 14 million barrels per day from international markets. Saudi Arabia and the UAE redirected around 5 million bpd through alternative pipelines, while strategic stock releases by countries including the US and Japan provided additional supplies. But the largest shock absorber was China, which nearly halved its crude imports to about 5.5 million bpd.
According to The Economist, China's reduction in imports was largely achieved through releasing domestic inventories, restricting fuel exports and managing demand. This helped prevent a severe global oil shortage despite the disruption in Gulf shipping.
The result has been unusually contained oil prices. Five months into the conflict, Brent crude remained roughly $40 below its April 30 intraday peak of $126 a barrel, while the market even experienced a temporary "mini-glut" of crude.
This represents a reversal of the traditional balance of power. For decades, OPEC's ability to restrict or increase production gave oil producers significant influence over prices. China is demonstrating that a sufficiently large consumer can exercise similar influence by deciding how much crude to purchase and when to draw on its reserves.
China's influence is particularly significant because it can use state policy to manage oil demand and inventories on a scale that few other countries can match. Its opaque stockpile data also makes it difficult for other market participants to determine how much crude Beijing holds or how long it could withstand a prolonged supply disruption.
However, China's strategy has also had costs. Its export controls have reduced the availability of diesel, gasoline and kerosene compared with what would normally be expected at current crude prices. Nevertheless, the intervention has given other oil-importing countries additional time to adjust to the disruption.
The Economist argues that China's current dominance may not last. Global oil supply could tighten over the longer term as existing fields decline. The world effectively loses oil production equivalent to roughly one Saudi Arabia every two years, while investment in new production may be insufficient beyond 2030.
That could strengthen OPEC's position again because Persian Gulf producers remain among the few oil-producing countries investing heavily in new capacity. If OPEC's share of global supply increases while China's oil demand declines, the balance of power could shift back toward producers.
China's transition toward electric vehicles and broader electrification could accelerate that shift. Falling oil demand would reduce China's need to maintain huge inventories and diminish its ability to influence prices by changing its import volumes.
The Iran war has therefore demonstrated that oil-market power is no longer determined solely by producers. OPEC controls supply, but China has shown that a major consumer can exert comparable influence over demand.
For other oil-importing countries, the lesson is to use the current reprieve to diversify supply sources and reduce dependence on oil. The Economist argues that the most effective way to avoid excessive dependence on any major producer or authoritarian state is ultimately to reduce oil consumption itself.