China Shows Energy Resilience Amid Global Oil and LNG Crisis

China is confronting the largest oil supply disruption in modern global energy market history as the closure of the Strait of Hormuz and escalating conflict involving the United States, Israel and Iran continue to destabilize global crude and liquefied natural gas (LNG) flows, triggering extreme price volatility and mounting concerns over energy security.

Oil tankers remain stranded near the Strait of Hormuz, one of the world's most critical energy chokepoints, while supply chains across Asia, Europe and North America face severe disruption. Crude supply shortages, soaring freight costs and unstable benchmark prices have intensified pressure on importing economies, including China.

Oil Supply Shock Deepens

On April 14, JPMorgan warned that the final wave of oil tankers that departed before the Hormuz blockade was nearing destination, signaling that so-called 'pre-blockade inventories' within the global supply chain were close to exhaustion and that the full impact of the supply shock was about to emerge.

The same day, the International Energy Agency (IEA) said global oil supply fell by 10.1 million barrels per day in March, marking the largest monthly decline on record. The agency estimated the current global supply deficit at 11 million barrels per day, while cumulative disruptions linked to the Middle East conflict have exceeded 750 million barrels of crude.

On April 21, Vitol, the world's largest independent oil trader, warned that the global oil market deficit had widened to 1 billion barrels.

Lu Ruquan, president of the Economics and Technology Research Institute under China National Petroleum Corporation, said the current disruption far exceeds the severity of the 1973 and 1979 oil crises, when supply deficits reached roughly 4 million barrels per day.

As of April 18, shipping conditions in the Strait of Hormuz had shown little improvement. Daily vessel traffic remained below 10% of normal levels, averaging only 11.9 transits per day compared with 125 vessels before the blockade, according to shipping data. Vessel tracking firm Kpler said the number of oil tankers stranded near both entrances of the strait had reached record highs.

Even if the strait were to reopen immediately, clearing the shipping backlog would require more than three months, prolonging global supply tightness in the near term.

The blockade has effectively severed traditional Middle East maritime oil routes. Crude shipments from the Gulf region to Asia, Europe and North America have been forced to reroute on a massive scale, sharply increasing transportation times and costs.

Voyages from the Middle East to Asia have lengthened from 18–22 days to 35–45 days, while routes to Europe now take 25–30 days instead of 10–12 days. Daily charter rates for very large crude carriers (VLCCs) have surged from around $30,000 to $120,000, while rates for smaller tankers have risen more than fivefold.

Governments worldwide have responded by releasing strategic petroleum reserves in an attempt to stabilize markets. However, the scale of the supply shortfall has significantly outpaced available emergency stockpiles.

According to the IEA, OECD commercial oil inventories stood at approximately 2.8 billion barrels before the conflict. By April 10, inventories had fallen to 2.45 billion barrels, a decline of more than 12%, with Asia and Europe experiencing the fastest drawdowns.

Global oil trade flows have also been fundamentally reshaped. The traditional Middle East-centered supply structure has fractured, widening regional price differentials. Premiums for West African crude have jumped 30%, while the spread between Middle Eastern and non-Middle Eastern crude has expanded to $15–20 per barrel, intensifying volatility in global pricing systems.

China Adjusts Crude Imports and Expands Strategic Buffering

China has also been affected by the unprecedented disruption.

According to data from China's General Administration of Customs and industry research institutions, imports of Middle Eastern crude have declined temporarily due to the Hormuz blockade, soaring freight costs and higher international oil prices. Alternative crude supplies from West Africa and South America have become significantly more expensive.

Chinese coastal refineries that rely heavily on Middle Eastern crude have faced rising procurement costs and longer shipping cycles, slowing feedstock arrivals.

However, unlike many countries that have been forced to aggressively release reserves while inventories decline, China has increased stockpiling efforts.

The IEA's April oil market report showed that China has continued replenishing petroleum inventories despite global shortages. Industry analysts said China's relatively abundant storage infrastructure allows nationwide resource coordination within 72 hours, helping offset short-term import disruptions and ensuring stable fuel supply for transportation, chemical manufacturing and essential public services.

LNG Market Hit by Qatar Disruptions

Global LNG markets have also been shaken by escalating tensions in the Gulf.

On March 18, Qatar's Ras Laffan Industrial City — the world's largest LNG production hub — came under attack, sending shockwaves through international gas markets.

The Middle East accounts for a core share of global LNG exports. Qatar, the United Arab Emirates and Oman together represent roughly 35% of global LNG supply, with Qatar alone accounting for around 20%.

The Strait of Hormuz carries approximately one-fifth of global LNG trade, and nearly all LNG exports from Qatar and the UAE pass through the waterway.

Following disruptions in Hormuz, LNG exports from both countries were effectively halted.

The crisis worsened after two of the 14 LNG production lines at Ras Laffan sustained severe damage. The associated Pearl GTL project was temporarily shut down, while expansion work at Qatar's North Field project was delayed.

Qatar's Energy Minister Saad al-Kaabi said the attack disabled 17% of the country's LNG export capacity, equivalent to an annual supply loss of 12.8 million metric tons, with repairs expected to take three to five years.

In late March, QatarEnergy issued force majeure notices to long-term LNG buyers in China, Italy, Belgium and South Korea, warning that supply disruptions could last as long as five years, deepening concerns over prolonged market tightness.

At the same time, the UAE reduced LNG production after attacks on the Ruwais refinery disrupted some gas field operations, while Oman's LNG utilization rate dropped from 95% to 40% due to Hormuz-related controls.

The combined disruptions triggered a sharp rally in global LNG prices.

Asia's benchmark JKM spot LNG price surged from $12 per million British thermal units (mmBtu) before the conflict to $32/mmBtu, the highest level since 2022. Europe's TTF benchmark gas price climbed from 35 euros per megawatt-hour to 78 euros, an increase of more than 120%.

Data from the Shanghai Petroleum and Natural Gas Exchange showed that China's annual long-term contracted LNG supply fell by roughly 3% after QatarEnergy's force majeure declaration took effect.

China's LNG import costs rose sharply in March, while LNG arrivals declined year-on-year, increasing short-term supply pressure.

China Says Domestic Gas Supply Remains Manageable

Despite the market turbulence, Chinese energy officials said the impact on domestic natural gas supply remains controllable.

According to industry sources at China National Petroleum Corporation, China imported around 19.44 million metric tons of LNG from Qatar in 2025, accounting for approximately 32% of total LNG imports but only around 6% of China's overall apparent natural gas consumption.

Officials noted that China is currently transitioning from peak winter demand into a seasonal slowdown, reducing pressure on urban gas distribution networks while industrial demand remains relatively weak.

The combination of lower demand and high storage levels has provided a buffer against short-term LNG supply shocks, industry sources said.

China's LNG import structure also remains heavily weighted toward long-term contracts, limiting exposure to extreme volatility in the spot market. Residential gas prices remain under policy protection, preventing sharp price increases for households.

Meanwhile, major underground gas storage facilities across China have launched a new annual gas injection cycle to strengthen winter supply security.

On April 7, PetroChina's Southwest Oil and Gas Field announced the start of annual gas injection operations at the Xiangguosi storage facility, where four compressor units were brought online to prepare reserves for the coming winter and spring demand seasons.

Industry experts said provinces with high gas demand, including Jiangsu, have already secured long-term contracted gas supplies, supplemented spot purchases and coordinated provincial pipeline scheduling to ensure stable supply for both residential and industrial users.

Asian Refining Sector Under Pressure

The disruption has also pushed Asia's refining and petrochemical sector into severe operational stress.

Asia accounts for roughly 45% of global refining capacity and depends heavily on Middle Eastern crude imports. More than half of the region's imported crude comes from the Gulf, with Iraq's Basra medium sour crude serving as a key feedstock for many Asian refineries.

Basra crude alone represents about 18% of Asia's total crude imports.

However, Iraq's oil exports have suffered major damage during the conflict.

Production in southern Iraq's main oil-producing region has reportedly fallen 80%, while three major loading berths at Basra terminals were destroyed and pipeline infrastructure severely damaged.

As a result, Iraq's crude exports dropped from 3.3 million barrels per day to just 900,000 barrels per day, relying largely on smaller vessels that cannot meet the scale requirements of major Asian refiners.

According to Kpler data, Asian imports of Basra crude plunged 82% year-on-year during March and April.

India and South Korea faced average daily shortfalls of 850,000 barrels and 450,000 barrels respectively, while China recorded the largest deficit in Asia at 1.2 million barrels per day.

The disruption forced smaller Asian refineries to suspend operations, while larger plants reduced throughput.

China's refining sector has responded by lowering operating rates across state-owned refiners, independent 'teapot' refiners and large private petrochemical groups.

Feedstock shortages have also reduced domestic supplies of petrochemical products such as naphtha, ethylene and paraxylene (PX), driving up downstream production costs.

To offset the loss of Middle Eastern crude, China has expanded imports of Russian ESPO and Siberian crude through pipelines and Far East maritime routes.

Russian crude imports increased by 280,000 barrels per day during March and April, helping compensate for part of the Basra supply deficit.

Lu Ruquan said replacing Basra crude is operationally complex because Asian refineries require weeks to adjust catalysts and production configurations, while alternative crude deliveries can add 15–20 days to shipping schedules.

Technical managers at major Chinese refining companies said catalytic cracking units require catalyst replacement and process adjustments when switching feedstock grades. Without such modifications, gasoline and diesel yields can decline by 3%–5%.

Hydrogenation units also require upgraded operating conditions, raising processing costs by 10%–15%, while aromatics and ethylene units face lower feedstock efficiency and product quality fluctuations.

Despite the challenges, Chinese refiners have accelerated operational adjustments. Several refiners shortened crude-switch adaptation cycles to less than three weeks, outperforming the industry average of four to six weeks.

Leading companies including Hengli Petrochemical and Zhejiang Petrochemical have also reduced purchases of high-priced spot cargoes and relied more heavily on long-term supply contracts to limit exposure to volatile premiums.

China has additionally coordinated feedstock allocation between coastal refineries and inland pipeline-connected facilities to prioritize stable production of critical petrochemical products including ethylene and aromatics.

Oil Price Volatility Intensifies

The U.S.-Israel-Iran conflict has fundamentally disrupted the previous balance in global crude markets, with geopolitical risk replacing supply-demand fundamentals as the dominant driver of oil prices.

Before the conflict escalated, WTI crude traded near $67 per barrel, while Brent crude hovered around $70.

After Iran announced the closure of the Strait of Hormuz on March 1, prices surged rapidly, climbing roughly 30% within two weeks.

By April 6, during the most intense phase of the conflict, WTI crude briefly exceeded $117 per barrel, while Brent rose above $112. Dubai crude climbed as high as $128.52 per barrel.

In just over one month, global oil prices had risen more than 70%, reaching their highest levels since 2014.

The market then entered a period of sharp volatility.

On April 17, oil prices suffered another major selloff. New York crude futures for May delivery fell $10.84 per barrel in a single session to settle at $83.85, a drop of more than 11%. Brent crude for June delivery fell $9.01 to close at $90.38, down nearly 10%.

By April 20, international oil prices had stabilized near $90 per barrel.

China Moves to Stabilize Domestic Fuel Markets

In response to the extreme volatility, Chinese authorities implemented macro-level controls on domestic fuel pricing.

Following the initial surge in international oil prices, China's pricing mechanism indicated that gasoline and diesel prices should rise by 2,205 yuan and 2,120 yuan per metric ton respectively starting March 23.

However, the government introduced temporary intervention measures that limited the actual increases to 1,160 yuan and 1,115 yuan per ton, reducing nationwide retail fuel price increases by roughly 0.85 yuan per liter.

As international prices later plunged and retreated further, authorities quickly adjusted policy direction and cut domestic fuel prices.

Effective April 21, gasoline and diesel prices in China were reduced by 555 yuan and 530 yuan per ton respectively.

At the same time, the government instructed major suppliers including China Petroleum & Chemical Corporation and China National Petroleum Corporation to diversify crude import channels and optimize refinery production plans to ensure stable domestic fuel supply.

Temporary subsidies were also introduced for sectors heavily affected by fuel price swings, including logistics and agriculture.

Despite global market turbulence, China has maintained stable domestic gasoline and diesel supply, avoided widespread fuel shortages and kept retail fuel prices within a controlled range, limiting the impact on consumers and industrial production.