China is being quietly credited with keeping energy prices down in the wake of Donald Trump’s war with Iran, in turn helping prop up the global economy while cementing its own power on the world stage.
By tapping into its huge reserves of oil, “China kind of saved the day,” and helped the world avoid the “doomsday scenario” when the Strait of Hormuz closure choked off 20% of global energy supply, said Paul Gruenwald, global chief economist at S&P Global Ratings.
For decades, China heavily depended on imported crude to meet its ever-growing energy needs. But over the past few years Chinese President Xi Jinping has sought to address what has long been viewed in Beijing as a major security weakness by spending billions of dollars amassing the world’s biggest stockpile of oil.
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Last year China’s reserves were estimated at nearly 600 million barrels bigger than the US. This enabled it to dramatically cut its oil imports when the war in the Middle East broke out, keeping a lid on global oil prices and safeguarding its own economy.
Not only has this enabled China to weather the global commodities storm resulting from the closure of the strategically vital Strait of Hormuz, it has seen China emerge as a “clear winner” from Donald Trump’s foray into the Middle East, said The Guardian, citing the findings of a report from geopolitical consulting firm Asia Group.
Long thought to be vulnerable to oil supply shocks, the conflict has made clear how China has “managed to transform that weakness into a surprising source of geopolitical power”, said The New York Times.
This has “big implications for the global energy industry, where oil producers like Saudi Arabia and the United States — not importers like China — have traditionally held most of the cards”.
“If they come to feel that in this domain, they are less vulnerable than they and many others may have assessed previously, that is a profound and important shift in one of the key inputs to how China makes decisions about its global strategy,” said Julian Gewirtz, a former White House and State Department official who worked on China issues in the Biden administration.
What next?
While the Iran crisis has vindicated Xi’s investment strategy, the “buffer” of China’s stockpile of oil, which has helped the world avoid a far deeper energy crisis up to now, “may face a test as Beijing shows signs of resuming purchases”, said CNBC.
Should this happen, the drag on global growth from elevated oil prices would deepen well beyond current estimates, said Krishna Srinivasan, director for the Asia and Pacific Department at the International Monetary Fund.
But the Iran crisis has also shown how “China’s muscular energy policy has afforded Beijing a major tool it could use, for instance, in a war over Taiwan”, said The Wall Street Journal.
“In the future, such power could be wielded in a clash with the US In the event of a war over Taiwan”. For example, “Beijing’s ability to slash oil imports for months on end could help China resist efforts by the US and its allies to block energy shipments”.
For China, “oil is not the Achilles’ heel we thought it was,” said Michal Meidan, head of China energy research at the Oxford Institute for Energy Studies. “I think a lot of people thought China was very, very vulnerable to oil supply disruptions. It’s not.”
