Why Oil Prices Didn't Spike Past $150 Despite the Strait of Hormuz Blockade: The Economist Analyzes Xi Jinping's 'Three Levers' — China Has Become the World's Oil Superpower

On February 28, 2024, the U.S.-Iran conflict erupted, blocking the Strait of Hormuz and triggering the worst oil supply shock in recent years. Yet even at the height of the conflict, international oil prices did not surge to $150 per barrel as analysts had predicted. The Economist, analyzing the reasons, points out that aside from Saudi Arabia and the UAE bypassing the Persian Gulf to export 5 million barrels of crude daily, the U.S. continuously releasing 2 million barrels per day from its strategic reserves, and poor governments leading energy rationing, China’s decision to cut crude imports by half (approximately 5.5 million barrels per day) during this period was the decisive factor.

Put differently, Beijing, leveraging its massive state intervention capacity, has quietly taken control of global oil market pricing. Hence, The Economist bluntly states, 'Forget OPEC—now it’s the Communist Party of China calling the shots,' with one oil trading giant’s executive even declaring, 'China is the new OPEC.'

On September 9, The Economist noted that from February to June 2024, China drastically reduced crude imports by half—equivalent to cutting 5.5 million barrels per day. Experts estimate this single move alone lowered the benchmark Brent crude oil price by over $30 per barrel. This reduction exceeds half the volume of global demand collapse during the pandemic (9 million barrels per day). Unlike the global economic recession at that time, China’s second-quarter GDP still grew by 4.3%, indicating Beijing did not cut oil purchases due to economic downturn.

The Economist analyzes that for four decades, the Organization of the Petroleum Exporting Countries (OPEC) has attempted to maintain high oil prices through production quotas, while importing nations, due to fragmented buyers and difficulty managing domestic demand, have been unable to suppress prices by limiting demand. However, China, with its highly centralized system, is the sole exception. Unlike OPEC+, which includes 21 member countries and requires complex negotiation procedures, the Chinese government can unilaterally act upon a single directive from Xi Jinping.

Beijing’s Three National Levers

The Economist identifies three main levers through which Beijing controls global crude oil trends:

1. Flexible Adjustment of Commercial and Strategic Reserves

In early 2026, as the world faced concerns of a 'super surplus' of crude oil, China capitalized on low prices to stockpile 200 million barrels, bringing its total strategic reserves to 1 billion barrels. According to Vortexa, a shipping data analytics firm, after Iran was attacked by the U.S. and Israel and decided to block the Strait of Hormuz, China began drawing down inventory from late April. By July, China’s inventory had decreased by 70 million barrels. Adding withdrawals from floating storage at sea and hidden underground caverns, China released a total of 150 million barrels (equivalent to 1.5 million barrels per day) over three months.

Tom Reed, an analyst at Argus Media, an energy price assessment agency, points out that most of these reserves came from 'commercial inventories' held by large state-owned oil companies. While refineries are normally required to replenish commercial inventories within a month, state-owned enterprises follow state orders, and the government directly granted special exemptions. Vortexa analysts estimate that halting stockpiling and releasing inventory reduced China’s import demand by 2.5 million barrels per day, and its strategic reserves could sustain this pattern for up to four months.

2. Strict Limitation of Refined Product Exports

As the world’s second-largest refiner, China’s government ordered domestic refineries in March 2024 to halt signing new export contracts and canceled multiple existing ones. From February to April 2024, China’s refined product exports plummeted by nearly half to 430,000 barrels per day, including 180,000 barrels per day of highly refined aviation fuel—saving Chinese refineries 1.2 to 1.8 million barrels per day in crude demand.

Although this hurt refineries’ export profits, Beijing chose to absorb this cost at the national level to ensure domestic supply of naphtha and liquefied petroleum gas (LPG).

3. Suppression of Domestic Civilian and Industrial Demand

In June 2024, China’s refineries processed 2.7 million fewer barrels per day compared to the same period last year, gasoline output dropped by 14%, and diesel and aviation fuel production plunged by 21%.

Ciarán Healy, an analyst at the International Energy Agency (IEA), pointed out that in the first two months after the U.S.-Iran war began, China’s gasoline and kerosene consumption fell by 10% year-on-year. The main reason was that authorities allowed fuel prices to rise, prompting people to switch to subways, bicycles, or electric taxis. During the May 2024 holiday period, EV charging on highways surged nearly 55% year-on-year.

Additionally, local governments suspended infrastructure projects to save diesel, and petrochemical firms followed government orders to use coal and ethane instead of imported naphtha to produce plastic polymers.

State Intervention and Overcapacity

The Economist notes that China’s massive petrochemical industry last year converted millions of barrels per day of naphtha and liquefied petroleum gas (mostly from the Middle East) into polymers—ranging from polyvinyl chloride (PVC) and synthetic rubber to nylon and polyester—materials heavily used by Chinese factories. When Middle Eastern raw material imports sharply decreased and the government issued a 'fuel over feedstock' directive, petrochemical firms began using coal and ethane (a gaseous byproduct of oil refining) to produce some polymers.

The Economist emphasizes that this ability to arbitrarily adjust oil demand at low cost enables the world’s largest oil importer to influence prices just like OPEC. As the UAE exits OPEC and other members face production pressures, OPEC’s role is weakening, while China’s market influence grows. Michal Meidan, a researcher at the Oxford Institute for Energy Studies, stresses that China has 'barely touched its core national strategic oil reserves,' indicating ample room for further policy maneuvering.

Although China’s second-quarter GDP growth rate of 4.3% was the lowest since late 2022, this was mainly due to weak investment and the aftermath of the real estate crisis, not oil shortages. China’s long-term subsidies for green energy and massive inventories from petrochemical 'overcapacity' served as a buffer against this oil price shock. China has accumulated large stocks of unsold polymers and derivative products.

While China’s oil inventories are not infinite and cannot sustain multi-year production cuts like OPEC, this Iran war has proven to the world: China indeed possesses the absolute capability to stabilize the global oil market independently within a few months.