RPT-BREAKINGVIEWS-China has enviable buffers against Iran oil shock

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

By Ka Sing Chan

HONG KONG, March 10 (Reuters Breakingviews) - China’s chronic insecurity has left it unusually well cushioned as the Iran crisis unfolds. Years of hedging have built crude stockpiles sufficient to keep its $20 trillion economy running for at least 120 days, while forcing Beijing to diversify suppliers far beyond the Middle East. Subdued inflation provides a third buffer, giving policymakers room to absorb any near-term shock.

Few major economies treat national security and wartime readiness as seriously as the world’s biggest oil importer. Escalating tensions with Washington since U.S. President Donald Trump’s first term spurred Beijing’s stockpiling. Over the past year, the People’s Republic has been filling its tanks by taking advantage of lower international prices and even lower prices from sanctioned suppliers such as Russia, Iran and Venezuela.

The true size of its stores is undisclosed. The last official update in 2017 put its special petroleum reserve $(SPR)$ at 238 million barrels. Reuters reported in February, citing data from research firms including Kpler, that stocks could now total as much as 1.3 billion barrels, equal to more than four months of imports. That would include commercial tanks held by state giants such as PetroChina 601857.SS and Sinopec 600028.SS.

The relationship between insecurity and hoarding is hardly unique. Japan, an island nation vulnerable to natural disasters and import disruptions, holds a reserve that can last over 250 days. But nearly 95% of its crude comes from the Middle East. By contrast, China imported oil from 49 different countries last year, per China Customs data, with barrels shipping through the Strait of Hormuz accounting for 43% of the total. Beijing could lean further on Moscow, for instance, if a prolonged conflict chokes off Persian Gulf flows.

As the rest of the world winces at the oil shock, China’s third anchor is its capacity to absorb more inflation. Consumer prices have undershot the government’s 2% target for years, such that Premier Li Qiang has made “steering general prices back to positive level” a top priority this year. China announced on Monday a 1.3% increase in consumer prices year-on-year, still well below the government’s 2% target for 2026.

Unlike his American counterpart Trump, President Xi Jinping doesn’t need to worry about voters grumbling about runaway fuel prices ahead of a mid-term election. But he also has reserves to unleash if he needs to quell imported inflation. A prolonged oil crisis in the Middle East will be painful for everyone. In the near term, China is relatively well insulated.

CONTEXT NEWS

China’s consumer price index rose 1.3% year-on-year in February, the National Bureau of Statistics said on March 9. The producer price index dropped 0.9% in the same month.

China might have stockpiled as much as 1.3 billion barrels of strategic petroleum reserves, or more than four months of imports, Reuters reported on February 24, citing data from research firms including Kpler.

China will set an annual oil output target of about 4 million barrels per day in its new five-year plan running from 2026 to 2030, the State Council announced on March 5. The Chinese government also pledged to expand the size of its undisclosed strategic petroleum reserves in the next five years.

(Editing by Una Galani; Production by Aditya Srivastav)

((For previous columns by the author, Reuters customers can click on CHAN/ KaSing.Chan@thomsonreuters.com))