China Weathers the Hormuz Shock, Rewriting the Energy Security Formula
Executive Summary
Following the February 2026 crisis over the blockade of the Strait of Hormuz, China avoided macroeconomic shocks despite cutting its crude oil imports by more than 40% compared to pre-war levels. This resilience was achieved by concentrating the drawdown of strategic petroleum reserves (SPR), adjustments to refinery utilization rates, and restrictions on petroleum product exports within state-owned oil companies—a structural approach that is difficult to replicate in markets dominated by private refiners. China's total suspension of petroleum product exports in October pushed regional refining margins in Asia to record highs and triggered a coordinated release of strategic reserves by the G7. More fundamentally, Beijing's concept of energy security is shifting from stockpiling crude oil to controlling technologies for batteries, semiconductors, and critical minerals. Consequently, South Korea must look beyond responding to short-term oil price fluctuations and strategically prepare for medium- to long-term competition in technology supply chains. The delay in reducing dependence on Iranian crude oil and the persistent shortage of refined products signal the limitations of China's strategy, requiring South Korean refining and energy policymakers to simultaneously pursue supply chain diversification and inventory management.
I. Situation Analysis
China's Response Strategy to the Global Oil Shock: Situation Analysis
1. Background and Developments
The starting point of this oil shock was the military conflict between Iran and Israel around the Strait of Hormuz in February 2026. The International Energy Agency (IEA) defined this as the "largest supply disruption in history"[1]. For China, which relies on seaborne transport for over 90% of its crude oil imports, a conventional response would have meant scrambling to secure alternative supplies[1].
However, Beijing chose a different path. China's seaborne crude oil imports, which exceeded 11 million barrels per day (bpd) before the conflict, fell to the low 7 million bpd range in August[4]. Columbia University's Center on Global Energy Policy (CGEP) and the Council on Foreign Relations (CFR) described these figures as "astonishing." By June, China had slashed its imports by more than 40%—over 5 million bpd—compared to pre-war levels, yet managed to avoid a domestic economic catastrophe[5]. As of June, imports had hit their lowest level in nearly a decade[1].
This adjustment proceeded simultaneously along three tracks. China drew down approximately 140 million barrels from its strategic petroleum reserves (SPR)[4][Deleted Source]. Refiners reduced their crude throughput[4]. The government restricted exports of gasoline and diesel to prioritize securing domestic inventories[4][Deleted Source]. The Council on Foreign Relations (CFR) interprets this as a real-world demonstration of "Beijing's centralized energy planning and long-standing wariness of its vulnerability to crude oil imports"[5].
2. Current Situation
Even in October, the eighth month of supply disruptions, the situation has not stabilized. International oil prices fluctuated again following news that Chinese refiners had completely suspended petroleum product exports for October[15][7]. Brent crude once again surpassed the $100 mark. PetroChina canceled scheduled shipments of gasoline and jet fuel[7]. Beijing justified the move as necessary to "maintain domestic supply and replenish inventories"[12].
The repercussions of this measure extended far beyond China's borders. Regional gasoline refining margins in Asia surged to a record high of $50.53 per barrel over Brent[15]. The day after China restricted fuel exports, U.S. President Trump announced that Europe had agreed to release "massive amounts" of its diesel stockpiles[11]. The G7 agreed to release 100 million barrels of crude oil and diesel over four months through the IEA[11]. In effect, China's inventory-securing strategy triggered a coordinated release of strategic reserves by the Western alliance.
By September, crude oil flows through the Strait of Hormuz itself had recovered close to pre-war levels. However, analyses suggest this was the result of an increase in informal ship-to-ship transfers via the "dark fleet"[9]. The shortage of refined products remains unresolved[14]. While crude oil is flowing out of Hormuz again, refined products such as gasoline and diesel from both Russia and China are reportedly still not being released into the market[14].
3. Key Actors and Positions
The Chinese Government (National Development and Reform Commission and State-Owned Oil Companies)used this crisis as an opportunity for demand management and industrial restructuring. By concentrating the shock on refiners, the government minimized the direct impact felt by general consumers[1]. Sinopec and CNPC publicly stated that "domestic oil demand has overall peaked"[2]. Within China, the perception that "oil is yesterday's story" is spreading[2]. An EAI analysis evaluates this adjustment "not as a crisis response, but rather as the manifestation of an already ongoing trend of slowing demand"[3]. Beijing's very concept of energy security is reportedly shifting "from controlling resources like crude oil to controlling processing technologies for batteries, semiconductors, and critical minerals"[2][3].
The Chinese Refining Industry (Sinopec, PetroChina, etc.)bore the direct burden of this strategy. They were the parties executing the cuts in crude throughput and the export suspensions, while simultaneously serving as the implementers of the government's policy to secure domestic inventories[4][7][15].
The United Statesviews this situation from two perspectives. First, the Trump administration promotes it as a diplomatic achievement in securing the release of European diesel stockpiles[11]. Second, think tanks and academia, including the CFR and Foreign Affairs, are analytically noting that China's energy security model operated more effectively than expected[5][8].
The G7 and Europeresponded with a coordinated release of strategic reserves through the IEA framework[11]. This demonstrates a dynamic where the West filled the void while China focused on stockpiling inventories domestically.
The Asian Regional Refining and Trading Industrywas both a direct beneficiary of the surge in refining margins caused by China's export suspension and a victim of supply instability[15]. Since China's structural dependence on Iranian crude oil persists, Beijing is expected to run a dual strategy of resource acquisition and technology control in tandem for the time being[3].
4. Key Issues
The first issue is whether the sharp decline in China's imports is the result of a structural peak in demand or a temporary stockpiling strategy. While the official diagnoses of Sinopec and CNPC lean toward the former[2], the reality of China's dependence on Iranian crude oil does not rule out the latter possibility[3].
The second issue is the externality that China's domestic-first supply measures impose on the global refined products market. The surge in Asian refining margins and the G7's coordinated response on strategic reserves show that these repercussions have already materialized[15][11].
The third issue is the redefinition of the concept of energy security itself. Internal Chinese analyses suggesting that the center of gravity is shifting from competing for resource acquisition to competing for technology control[2] indicate that supply chain competition over processing capabilities for batteries, semiconductors, and critical minerals carries medium- to long-term implications that go far beyond variables in the crude oil market.
II. In-Depth Analysis
China's Response Strategy to the Global Oil Shock: In-Depth Analysis
1. Root Cause Analysis
The superficial flashpoint of this oil shock was the February 2026 military conflict between Iran and Israel and the threat of a blockade of the Strait of Hormuz. However, the root cause explaining China's response is not the war itself. The core factor is that Beijing had already entered a phase of structural demand slowdown. Both Sinopec and CNPC officially diagnose that domestic oil demand has overall peaked[2]. Michal Meidan, a research scholar at Columbia University's CGEP, reports that the perception that "oil is yesterday's story" is spreading within China[2].
The foundation of this diagnosis is the rapid spread of electric vehicles (EVs). Mexico's El Financiero reported that after Brent crude surpassed $100 in March, EV sales increased in approximately 90 countries and broke monthly records in 30 countries[16]. The IEA projects that EVs will account for about 30% of global car sales this year[16]. Local analyses indicate that most consumers chose EVs not out of environmental consciousness, but due to rising gasoline prices and supply uncertainty[16]. This suggests that the sharp drop in China's crude oil imports was not a one-off crisis response, but rather the manifestation of an already ongoing trend brought to the fore by the war[3].
At a more fundamental level, Beijing's very concept of energy security is shifting. Erica Downs, an expert affiliated with the Council on Foreign Relations, points out that a view is spreading among Chinese analysts that "the source of global energy security is shifting from controlling resources like crude oil to controlling technology"[2]. The underlying assessment is that securing a lead in processing technologies for batteries, semiconductors, and critical minerals is a more essential security asset than securing crude oil stockpiles. This shift in perception explains why China chose a strategy of selectively absorbing the burden rather than fully responding to crude oil supply disruptions.
2. Structural Context
A structural feature of China's energy policy is that the state can simultaneously control both supply and demand. The Council on Foreign Relations describes this as "centralized energy planning and long-standing wariness of its vulnerability to crude oil imports"[5]. This wariness has materialized through decades of accumulating strategic petroleum reserves. In this crisis, China actually drew down approximately 140 million barrels of its reserves[4][Deleted Source]. Simultaneously, it lowered refinery utilization rates and restricted gasoline and diesel exports to prioritize securing domestic inventories[4][Deleted Source]. This structure concentrates losses—which would be unbearable for private enterprises—on the refining sector while shielding general consumers and the macroeconomy[1].
This structure cannot be explained separately from China's political system. As state-owned enterprises, Sinopec and CNPC prioritize serving national energy security goals over maximizing profits. Their governance structure allows them to accept directives to absorb deteriorating refining margins or lost export opportunities. In contrast, Western private refiners would find it difficult to avoid the opportunity costs of export restrictions and shareholder pressure. Even as regional gasoline refining margins in Asia surged to $50.53 per barrel over Brent[15], Chinese refiners were able to make the decision to completely suspend exports for October[15][7]. This was the result of a state directive system at work, rather than market logic.
In a security context, structural dependence on the Strait of Hormuz remains the Achilles' heel of China's energy strategy. Over 90% of China's crude oil imports arrive by sea[1]. A significant portion of this is Middle Eastern oil, including Iranian crude, concentrated on routes passing through Hormuz. Although crude oil flows through the strait recovered close to pre-war levels in September, assessments indicate this was not a resumption of normal trade, but rather the result of increased informal ship-to-ship transfers via the "dark fleet"[9]. The shortage of refined products remains unresolved[14]. This highlights that even as the concept of security shifts from resource control to technology control, structural dependence on crude oil itself cannot be resolved in the short term[3].
In an economic context, some analyses suggest that China's adjustment paradoxically contributed to global price stability. The Council on Foreign Relations notes that while China significantly reduced imports, it "did not trigger a domestic economic catastrophe"[5]. It can be interpreted that because China did not join the scramble to secure alternative supplies, upward pressure on international oil prices was mitigated to that extent. However, this stability came at the cost of sacrificing China's domestic refined product supply. The fact that Brent crude once again surpassed $100 following the October export suspension[7] demonstrates that China's restraint was a temporary buffer rather than a permanent stabilizing factor.
3. Comparison with Historical Precedents and Similar Cases
China's current response differs sharply from the typical patterns of consuming nations during past oil shocks. During the oil shocks of 1973 and 1979, Western advanced economies followed a path of competing for alternative supplies, consumer rationing, and enduring inflation. In a recent survey reported by the Lesotho Times, economists' forecasts for oil prices diverged widely from $65 to $95, reflecting a shared concern that "oil shocks could become a new normal for the economy"[13]. This reflects past experiences where the shock of oil crises was passed on entirely to consumer prices and household burdens.
China's approach is distinguished by the state's intentional blocking of this pass-through channel. Energy Intelligence analyzes that the response of consuming nations throughout this crisis can be summarized as "securing alternative crude, drawing down inventories, paying consumer subsidies, and expanding domestic production"[10]. While China also utilized inventory drawdowns and production adjustments, it differentiated itself by choosing to concentrate losses on the refining sector instead of providing consumer subsidies[1]. This is an approach that is difficult to employ in a system where private refiners act autonomously according to market prices.
A comparison with the 2008 concerns over a "third oil shock," analyzed by the EAI in a 2026 public opinion briefing, also reveals differences. At that time, 79% of citizens across 16 countries projected oil prices to rise over the next decade, with 87% of South Koreans holding a pessimistic outlook[6]. However, during that period, citizens in emerging economies, including China, had relatively lower expectations regarding the extent of oil price increases[6]. This highlights a shift in perception between that earlier period—when China, in a phase of rapid growth and rising demand, perceived oil price spikes merely as a "consuming nation's crisis"—and the current phase, where peak demand theories are widespread and supply disruptions are utilized as an "opportunity for restructuring"[3].
The G7's response also followed historical precedent. The G7 agreed to release 100 million barrels of crude oil and diesel over four months through the IEA[11]. This represents a textbook activation of the coordinated SPR release mechanism established since the creation of the IEA in 1974. However, it is unusual that the trigger for this coordination was not the Middle Eastern supply disruption itself, but rather China's export suspension measures[11][12]. While the West responded to OPEC's supply decisions during past oil shocks, this time a dynamic has emerged where they are responding to the decisions of a demand-side actor, namely China.
4. Key Variables
The first variable is the speed at which China replenishes its strategic petroleum reserves. Having drawn down 140 million barrels[4][Deleted Source], the timing and price point at which Beijing seeks to refill its inventories will dictate future import patterns. If the export restrictions are a temporary measure to secure inventories[12], exports may resume once inventories recover to a certain level. Conversely, if the peak demand theory represents a structural trend, the trend of reduced imports itself could become prolonged.
The second variable is whether the situation in the Strait of Hormuz stabilizes. Although crude oil flows have neared pre-war levels through dark fleet transfers[9], the shortage of refined products remains unresolved[14]. If the Iran-Israel conflict reignites or transit through Hormuz is threatened again, China's incentive to reduce imports further and extend export restrictions will increase. In this scenario, the pattern of rising regional refining margins in Asia and coordinated Western reserve releases is highly likely to repeat[15][11].
The third variable is whether the pace of the EV transition is sustained. If EVs account for 30% of global new car sales this year as projected by the IEA[16], China's peak oil demand theory will solidify into a structural reality rather than a temporary diagnosis. This will exert pressure to readjust the business strategies of Sinopec and CNPC, and ultimately, China's share of crude oil procurement from the Middle East.
The fourth variable is the interaction of US-China energy diplomacy. As seen in President Trump's public mention of the release of European diesel stockpiles[11], China's supply chain management measures are no longer merely domestic issues. If the pattern of Beijing's export restrictions triggering coordinated Western reserve releases repeats, there is a risk of entrenching a vicious cycle where national responses to energy security provoke one another, amplifying price volatility.
III. Recommended Policy Responses
China's Response Strategy to the Global Oil Shock: Comprehensive Assessment and Policy Responses
1. Comprehensive Assessment
This oil shock must be viewed on two distinct levels. One is the exogenous variable of the supply shock originating from Hormuz. The other is the endogenous variable of China's structural peak in oil demand. The overlap of these two variables created an effect that made Beijing's response appear more sophisticated and strategic than it actually was. The timing of the outbreak of the war merely coincided with the moment Sinopec and CNPC formalized their peak demand assessments[2]. The core point is that the crisis arrived at a time when the cumulative effects of EV adoption and alternative fuel policies were already well underway[3][16].
This structure makes it difficult for other importing countries to easily replicate China's response. The method of transferring losses to state-owned refiners to protect general consumers and the macroeconomy[1] is only possible under a corporate governance structure of state-owned enterprises like Sinopec and CNPC. In markets centered on private refiners, profit maximization pressures and shareholder interests block government directives to restrict exports. This is why East Asian importing countries, including South Korea, find it difficult to directly transplant a Chinese-style buffer mechanism.
A more critical change is the shift in Beijing's very concept of energy security. Chinese analysts themselves diagnose that the center of gravity for security is moving from stockpiling crude oil to controlling processing technologies for batteries, semiconductors, and critical minerals[2]. This variable goes beyond responding to short-term oil price fluctuations and directly impacts South Korea's medium- to long-term industrial and trade strategies. If China employs a dual strategy of reducing its dependence on crude oil while simultaneously increasing its grip on technology supply chains, the competitive environment facing South Korean companies will become a far more structural issue than the rise and fall of oil prices.
However, China's strategy is not without its vulnerabilities. Its structural dependence on Iranian crude oil remains unresolved[3]. The fact that refiners completely suspended petroleum product exports in October[15][7] can be read as a signal that drawing down reserves and slowing demand were insufficient to fully absorb the supply disruptions. The surge in regional refining margins in Asia to record highs[15] demonstrates that China's export restrictions are transferring a substantial burden to the regional supply chain. The G7's coordinated release of 100 million barrels of strategic reserves[11] indicates that the Western alliance's response to the shock originating from China has already begun.
2. Recommended Policy Responses
Short-Term (3–6 Months): Diversifying Supply Chain Risks and Managing Inventory
The refining and petrochemical industries need to establish internal monitoring systems to determine whether China's export suspension in October is a temporary measure or a structural shift. The surge in Asian refining margins [15] could offer short-term profit opportunities for domestic refiners. Simultaneously, regarding feedstock procurement, they must diversify their channels for securing alternatives to Middle Eastern crude oil. That shipping volumes through the Strait of Hormuz have approached pre-war levels, bolstered by an increase in dark fleet transshipments, [9] paradoxically suggests that instability in official trade routes persists. At the government level, South Korea should re-examine strategic petroleum reserve (SPR) release scenarios within the G7 coordination framework and preemptively review domestic stockpile standards to prepare for potential export restrictions on diesel and gasoline by domestic refiners.
Medium-term (6 months to 2 years): Preemptive Response to China's Shifting Demand Structure
The declarations of peak demand by Sinopec and CNPC [2] directly affect South Korea's export strategy for petrochemical and refined petroleum products to China. If demand for gasoline and diesel within China is entering a phase of structural contraction, South Korean refiners will inevitably have to redesign their export routes to China. At the same time, China's expansion of its electric vehicle (EV) and battery supply chains is highly likely to intensify competition for the South Korean battery and secondary battery industries. The Ministry of Trade, Industry and Energy (MOTIE) should use the policy signals of Chinese state-owned enterprises as leading indicators to simultaneously promote the adjustment of the petrochemical industry's export portfolio to China and the diversification of battery material supply chains.
Long-term (2 years or more): Redefining the Concept of Energy Security
The assessment that Beijing is shifting its security focus from resource control to technology control [2] carries significant implications for South Korea. Traditional energy security strategies centered on crude oil stockpiling and import diversification are insufficient to cope with structural changes originating from China. This must be accompanied by efforts to enhance supply chain self-reliance in battery materials, semiconductor equipment, and critical mineral processing technologies. The Ministry of Foreign Affairs (MOFA) and MOTIE need to regularly assess the deployment of China's dual resource-technology strategy and establish a system that integrates Middle Eastern crude oil supply-demand management and technology supply chain strategies within a single policy framework.
3. Monitoring Indicators and Trigger Points
The trend of China's seaborne crude oil imports is the most direct leading indicator. The primary focus of observation is whether the current level, which has fallen to the low 7 million barrels per day (bpd) range, [4] declines further or rebounds to the mid-7 million bpd range or higher. A rebound would signal that China is shifting its focus from managing demand slowdown to securing supply.
Whether Chinese refiners resume exports of refined petroleum products is also a key trigger. Volatility in Asian refining margins will depend on whether the total export suspension in October [15][7] continues beyond November or transitions to a partial resumption. If refining margins rise further from their current record-high levels, [15] it will mark an inflection point affecting both the short-term profitability of domestic refiners and domestic fuel prices.
Changes in strategic petroleum reserve (SPR) inventory levels must also be monitored. The point at which the depletion of the 140-million-barrel SPR [4] [deleted source] transitions to a replenishment phase serves as a gauge of China's crisis response capacity. Additionally, the actual pace of the G7's coordinated release of 100 million barrels of reserves [11] during the four-month implementation period and whether it will be extended must be assessed.
The potential recurrence of military tensions surrounding the Strait of Hormuz is the ultimate trigger that could disrupt all scenarios. Considering assessments that the current recovery in shipping volumes [9] is a temporary phenomenon reliant on dark fleet transshipments, if official transit volumes plummet again, the possibility that China's stockpiling and export restriction strategies will hit their limits cannot be ruled out.
4. Summary and Conclusion
During this oil shock, China absorbed the impact by concentrating losses in the refining sector while protecting general consumers and the macroeconomy [1]. This response was made possible by the structural peak in oil demand that had been underway even before the outbreak of the war [2][3]. The assessment that Beijing's concept of energy security is shifting from resource control to technology control [2] has direct implications for South Korea's mid- to long-term supply chain strategy. However, China's reliance on Iranian crude oil and the total export suspension in October [15][7] demonstrate clear limitations to Beijing's strategy. In the short term, South Korea must manage refining margin fluctuations and coordinated reserve releases; in the medium term, prepare for the restructuring of petrochemical exports to China; and in the long term, work to expand its resource-centric energy security framework to focus on technology supply chains.
References
[1] [Foreign Policy] How China Managed the Oil Shock
[2] [Columbia SIPA - CGEP] Erica Downs and Michal Meidan on China’s Oil Shock That Wasn’t
[4] [Foreign Affairs] The Stalemate With Iran Is Not Sustainable
[7] [Dünya] PETROL PİYASASINDA ÇİN ŞOKUBrent yeniden 100 doların üzerinde
[8] [Columbia SIPA - CGEP] The Iran Shock Is Not Over
[9] [Energy Intelligence] Uptick in Mideast Oil Flows Belies Gaping Supply Hole
[10] [Energy Intelligence] Ongoing Wars Put Low-Carbon Energy in Security Spotlight
[11] [Mint] Diesel Diplomacy! Trump says Europe will release ‘massive amount’ of diesel
[12] [Energy Intelligence] US Senate Unveils Long-Delayed Permitting Reform Bill
[13] [Lesotho Times] Oil-price shocks may be becoming a ‘new normal’ for economies
[14] [Foreign Policy] Oil Is Again Flowing Out of Hormuz
[16] [El Financiero] Un experimento energético que nadie diseñó
*This text is an AI translation of an original written in Korean. Some translations or nuances may be inaccurate.
This report is an in-depth analysis planned by an EAI researcher, grounded in sophisticated AI-assisted research, and finalized by the EAI researcher.
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