The Diplomat
China’s energy security problem is no longer just about buying enough oil.
The Hormuz Crisis and China’s Energy Security Dilemma
Author: John Calabrese
Despite sustained efforts to prioritize energy security across successive policy cycles, China remains exposed to external supply chains it does not control. The core problem is not simply import dependence, but reliance on maritime transit routes – particularly through the Strait of Hormuz – whose security ultimately lies beyond Beijing’s authority. The escalation of the Israel-U.S. war with Iran and the resulting disruption of traffic through Hormuz has transformed a long-recognized strategic risk into an immediate constraint, revealing the limits of China’s ability to ensure stable energy access under conditions of geopolitical contestation.
More fundamentally, the crisis highlights a deeper contradiction embedded in China’s energy strategy. While Beijing has sought to diversify suppliers, expand storage capacity, and build alternative transport corridors, it remains dependent on a global energy system structured around maritime openness and secured by actors with whom it is in strategic competition. This tension – between expanding material capabilities and limited control over the security environment in which those capabilities operate – defines the outer boundary of China’s energy security.
Structural Exposure and Systemic Asymmetry
China’s energy system is frequently described as relatively secure, with overall self-sufficiency exceeding 80 percent due to coal’s dominant role and the rapid expansion of renewable energy. Yet this aggregate measure obscures a critical imbalance. China remains heavily import-dependent for the liquid fuels essential to transportation, petrochemicals, and industrial activity – particularly crude oil. China imports roughly 4 billion barrels of crude annually, with a substantial share sourced from the Gulf and transported along maritime routes that traverse multiple strategic chokepoints.
This creates a deep-seated asymmetry between domestic energy abundance and external exposure. While China’s internal energy base appears robust, its oil supply is embedded in a global system shaped by external actors, contested geographies, and security arrangements beyond its direct control. Gulf producers – including Saudi Arabia, Iraq, the United Arab Emirates, Oman, Kuwait, and Qatar – account for roughly two-fifths of China’s crude imports. This dependence is not merely quantitative but systemic, reflecting both the scale of Gulf production and the lack of viable substitutes capable of matching it.
Moreover, official trade data understates China’s exposure. Despite the absence of recorded imports, multiple independent estimates suggest that Iranian crude, often routed through intermediaries and processed by independent refineries in Shandong, has accounted for more than 1 million barrels per day in recent years. This parallel supply chain enhances access to discounted oil but deepens China’s reliance on politically sensitive and sanction-prone networks. It also introduces opacity into the system, complicating both risk assessment and policy coordination.
The central point of fragility lies in chokepoint dependence. A large proportion of Middle Eastern exports to Asia transits the Strait of Hormuz, a narrow corridor through which a significant share of globally traded oil and liquefied natural gas flows. Interruptions – whether through physical obstruction, military escalation, or merely the withdrawal of shipping insurance – translate rapidly into systemic supply risk. In this sense, China’s exposure is geographic as much as economic. It depends on the uninterrupted functioning of a maritime artery it neither controls nor secures.
Buffering Capacity and Its Constraints
China entered the Hormuz crisis with substantial buffers. Its strategic petroleum reserves and commercial inventories have expanded significantly in recent years, with stockpiling accounting for a large share of incremental import demand. China’s total crude inventory is estimated at approximately 1.4 billion barrels, providing a meaningful cushion against short-term supply disturbances.
However, stockpiles primarily defer adjustment. They smooth supply over time but do not address the underlying dependence on external flows. In a scenario where the Strait of Hormuz remains obstructed for a prolonged period, reserves would gradually deplete, forcing China to make increasingly difficult trade-offs between economic stability and resource allocation.
At the operational level, the structure of China’s refining sector further complicates the picture. Independent “teapot” refineries in Shandong have played a central role in sustaining imports of sanctioned crude, particularly from Iran. Following the reimposition of U.S. sanctions in 2018, state-owned refiners largely withdrew from direct purchases, leaving smaller, semi-marketized actors to absorb the risk. This arrangement has allowed China to maintain access to discounted supplies while preserving plausible deniability at the state level.
Yet this decentralized system also introduces inefficiencies and fragility. Elevated inventories, both offshore and onshore, reflect not only opportunistic procurement but also constraints in processing capacity, tightening margins, and regulatory pressure. The result is a growing disconnect between China’s ability to secure barrels and its capacity to utilize them efficiently under stress. The system can accumulate supply faster than it can absorb it, limiting the effectiveness of stockpiling as a stabilizing mechanism.
Russia and Central Asian pipeline supplies provided a useful cushion, but one constrained by limited scalability and flexibility. Even with potential upgrades to the East Siberia–Pacific Ocean (ESPO) pipeline, upstream capacity and aging infrastructure cap near-term expansion, while fixed routes limit China’s ability to respond to price or supply shocks. Russian flows are also less reliable than they appear, given shifting U.S. sanctions dynamics and intensifying competition from India and other buyers for discounted barrels. As a result, overland imports enhance baseline stability but do not fundamentally alter China’s exposure to maritime risk.
Macroeconomic Transmission Under Compound Stress
The Hormuz crisis arrives at a difficult moment for China’s economy. Although China met its 5 percent GDP growth target in 2024, it continues to face multiple challenges, including weak consumption, deflationary pressures, and a prolonged property downturn. The collapse in real estate activity has had spillover effects on energy demand, with new housing starts falling sharply since 2019 and reducing construction-related diesel consumption. Energy security concerns are therefore emerging alongside, and reinforcing, domestic demand weakness.
Against this backdrop, a sustained oil price shock would intensify existing macroeconomic strains by deepening deflationary pressures in some sectors while squeezing energy-intensive industries. The impact would be particularly acute for Shandong’s teapot refiners, which rely on low-cost crude and operate on thin margins. Interruptions to Iranian flows combined with Brent prices above $100 per barrel would threaten their viability, with knock-on effects for employment and provincial revenues. Energy volatility thus becomes a transmission channel into domestic financial stress.
At the macro level, energy price volatility also interacts with global financial conditions. Rising oil prices increase inflationary pressures internationally, tightening monetary conditions and dampening external demand. For China, whose growth remains partly reliant on exports, this external drag compounds domestic weakness. Energy shocks thus function not only as sectoral disruptions but as systemic stress multipliers.
Some analysts suggest Brent crude could rise toward $200 per barrel if Iran-U.S. negotiations fail and the Strait of Hormuz remains effectively closed into 2027. Even if partial relief emerges following a reopening in June, residual capacity losses are likely to keep markets tight into late 2026 and beyond. For China, this would mean a persistently elevated import bill amid weak domestic demand and deflationary pressure. The continued risk of renewed closure would sustain a geopolitical risk premium, keeping Brent above $90 per barrel through 2026 and reinforcing energy costs as a constraint on China’s macroeconomic adjustment.
Strategic Partnerships Under Strain
The Hormuz crisis also complicates China’s broader strategic engagement with the Gulf. In recent years, Beijing has sought to transform its relationship with the region from a transactional supplier dynamic into a more comprehensive partnership encompassing trade, investment, and industrial cooperation. Chinese firms have expanded their presence across sectors including infrastructure, petrochemicals, renewable energy, and advanced manufacturing, while Gulf sovereign wealth funds have increased their investments in China, deepening financial linkages and reinforcing mutual interdependence.
This evolving relationship has been premised on assumptions of relative stability and predictable energy flows. Sustained dislocation challenges those assumptions. Instability raises the risk profile of Chinese investments, complicates project execution, and introduces uncertainty into long-term planning. It also reveals a core tension, namely that China’s expanding economic integration with the Gulf remains dependent on a security environment shaped by regional conflict dynamics and external military actors. Economic interdependence, in this context, translates less into strategic insulation than into shared vulnerability.
The Limits of Diversification and the Maritime Constraint
The crisis has renewed attention to long-standing efforts to reduce reliance on maritime chokepoints. The so-called “Malacca Dilemma” – the risk that seaborne energy flows could be disrupted along critical sea lanes – has shaped Chinese strategic thinking for decades. The interruption in Hormuz effectively introduces a parallel constraint, reinforcing a dual chokepoint logic in China’s energy security calculus.
In practice, however, diversification efforts face persistent limitations. Overland corridors through Pakistan and Myanmar offer alternative routes but remain constrained by political instability, security risks, and limited capacity. Even under favorable conditions, their throughput represents only a small fraction of China’s total import requirements. As such, they function as supplements rather than substitutes for maritime supply.
A more ambitious response – expanding China’s naval capabilities to protect sea lanes – would entail significant strategic and political risks. Sustained deployment in the Gulf would mark a departure from China’s traditional posture and could increase the likelihood of friction with U.S. and allied forces. It would also require capabilities and logistical infrastructure that remain underdeveloped relative to existing U.S. presence in the region.
The result is a persistent constraint. China’s energy security remains embedded in a maritime system it does not control and cannot easily replicate. Diversification can mitigate risk at the margins, but it does not eliminate the underlying dependence on open and secure sea lanes.
From Episodic Shock to Structural Risk
The most consequential impact of the effective closure of Hormuz lies in its transformation of risk from episodic to structural. Even partial reopening of the strait does not restore normal conditions. Elevated insurance costs, logistical bottlenecks, and uncertain transit arrangements continue to constrain flows, embedding volatility into the system rather than temporarily displacing it.
The shock is already historic. Oil prices surged more rapidly than in any recent conflict, with Brent peaking at around $126 per barrel in March 2026 amid what has been described as the largest global energy shock since the 1970s. Even as prices later retreated below $90 following a temporary reopening of the strait, volatility remains extreme and tightly linked to ceasefire dynamics rather than fundamentals. At the same time, an estimated 10–12 million barrels per day of supply outages and hundreds of stranded tankers underscore the scale and persistence of dislocation.
Crucially, the market impact is no longer confined to short-term price spikes. Even partial reopening has failed to restore normal flows. Shipping remains constrained by insurance costs, tanker backlogs, and uncertain routing, with full normalization likely to take months or longer. This points to a shift from episodic disturbances to structurally embedded uncertainty. Risk is now priced into the system rather than temporarily absorbed by it.
This shift has broad implications. Higher and more volatile energy costs intersect with domestic economic pressures, while interruptions to petrochemical and fertilizer exports from the Gulf feed into industrial and agricultural supply chains. The result is a multi-layered shock extending beyond oil markets into the wider economy.
More fundamentally, the crisis underscores a deep-rooted contradiction in China’s energy strategy. While Beijing has diversified suppliers, expanded reserves, and invested in alternatives, it remains dependent on a global maritime system underwritten by a strategic competitor. This dependence introduces a form of conditional access. China can secure resources, but not the stability of the pathways through which they move.
China’s energy system has demonstrated significant short-term resilience, supported by stockpiles, diversified sourcing, and adaptive procurement mechanisms. Yet the Hormuz crisis reveals the limits of this model. The central challenge is no longer securing supply at favorable prices but ensuring reliable access under conditions of sustained geopolitical instability.
In response, China is likely to expand reserves, accelerate renewable deployment, and continue investing in overland infrastructure. It may also incrementally enhance its capacity to protect overseas interests. These measures will strengthen resilience but will not resolve the underlying exposure.
As long as critical energy flows depend on contested maritime corridors, China’s energy security will remain constrained by factors beyond its control. More importantly, this constraint is not merely operational but strategic. It implies that China’s pursuit of autonomy in the energy domain is bounded not by resource scarcity, but by its limited ability to shape or substitute for the security architecture on which its access ultimately depends.
Credits: TCA, LLC.