Years of strategic crude stockpiling and a steep pullback in imports helped China insulate its domestic economy and prevent a global oil price catastrophe when the Strait of Hormuz closure cut off 20% of global energy supplies following the outbreak of Middle East hostilities in late February.
Strategic Reserves and the China Model
China’s deliberate accumulation of massive crude inventories over several years created a vital shock absorber for both its domestic economy and international energy markets. According to Paul Gruenwald, global chief economist at S&P Global Ratings, China kind of saved the day
and helped the world avoid a doomsday scenario
when conflict in late February choked off critical supply routes through the Strait of Hormuz, an artery responsible for one-fifth of global energy supply.
Data from the U.S. Energy Information Administration estimates that China held 1.4 billion barrels of strategic crude oil inventories as of December 2025, outpacing the United States, which held 825 million barrels when combining commercial and strategic reserves. This heavy reserve cushion allowed Beijing to slash its crude imports below 8 million barrels a day in May and June—marking a monthly import drop that fell for the first time since 2016, according to the EIA.
Kai Guo, executive president and senior fellow of the China-focused think-tank CF40 Institute, noted that Beijing had deliberately positioned itself for precisely this kind of supply shock, building structural redundancies that allowed national oil consumption to drop without harming broader economic activity. The crisis has fully vindicated years of government investment in stockpiling and clean energy ahead of potential ruptures in global oil supply chains, according to Guo.
Reserves, Coal Substitution, and Domestic Cushioning
Beyond crude stockpiles, regulatory mandates and domestic energy alternatives insulated the nation from extreme market shocks. Dan Wang, China director at Eurasia Group, explained that China holds roughly four months of crude in national reserves. Furthermore, a new energy law enacted last year requires major oil companies to maintain additional reserves on top of normal commercial inventories.
Wang also pointed out that coal remains a vital structural support, supplying about 53% of China’s energy mix. This heavy reliance on domestic coal acted as a crucial shock absorber, enabling the economy to pivot away from oil when global prices spiked. This particular China model
would not function efficiently in a normal economy due to the inherent investment waste, Wang noted, but when something uncertain like this happens, especially in Eurasia, it works.
As a result of these overlapping buffers, the economy is basically cushioned from this oil crisis,
Wang stated.
Renewed Price Pressures and the Risk of Resuming Imports
When the Middle East war erupted, initial analyst forecasts predicted oil prices would skyrocket to between $150 and $200 a barrel due to the abrupt supply disruption. Gruenwald remarked that not only did we get the magnitude wrong, sometimes we got the direction wrong,
largely because analysts underestimated the dampening effect of China’s inventory drawdowns and import cuts.
While Brent crude prices had eased to around $80 a barrel before climbing again, renewed hostilities between Iran and the U.S. in the Gulf pushed prices past $100 a barrel on Wednesday. Even with this recent surge, Gruenwald maintained that the current price handle remains digestible for the global economy.
However, China’s inventory buffer is not infinite. Official trade data shows that China’s crude imports rebounded by 22% and 6.2% month-on-month in July and August, respectively, signaling that Beijing’s purchases are gradually recovering from earlier lows, though they remain significantly below last year’s volumes.
IMF Warnings and Outlook Through 2027
The potential return of the world’s largest oil buyer to pre-war purchasing levels poses a fresh risk to international markets. Krishna Srinivasan, director for the Asia and Pacific Department at the International Monetary Fund, warned that if China resumes importing at its former pace, the drag on global growth from elevated energy prices would deepen well beyond current estimates.
Market observers expect the geopolitical strain to persist. Eurasia Group’s Dan Wang anticipates that the Gulf standoff will last for at least another year, with crude prices holding between $85 and $100 a barrel through 2027. Meanwhile, Goldman Sachs economist Daan Struyven warned in a recent note that prices could still climb as high as $120 a barrel as the conflict, now in its seventh month, continues to disrupt maritime shipping.
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