China's Exposure To The Persian Gulf

China is relatively well placed to absorb the initial shock. Years of aggressive stockpiling have left it with an estimated 1.2 billion barrels of crude in onshore reserves, equivalent to up to four months of import demand. This substantial buffer would help delay rationing or widespread disruption. China can further increase purchases from Russia, its largest source of crude. Beijing has also pre-emptively ordered refiners to curb fuel exports to preserve domestic supply.

China's broader energy mix offers additional insulation. Although China imports around a quarter of its LNG from Qatar, natural gas plays a smaller role in its industrial base than in many peer economies. Coal and renewables are the backbone of its power systems, with oil and gas accounting for only about 4% of its electricity generation, far below the 40%-50% share seen across much of Asia.

That said, a prolonged disruption in the Strait of Hormuz raises the risk of physical shortages that could weigh on industrial activity and supply chains. While Iranian barrels could be replaced over time, other Gulf dependencies would be far harder to offset.

To soften the blow on households, China has already raised its regulated fuel price caps. While administered prices help cushion consumers, the adjustment ultimately shifts the burden onto fiscal balances and eventually to corporate margins. Second-round effects such as higher transport costs, elevated shipping insurance premiums and pressure on fertilizer markets are also on the horizon. Energy-intensive sectors such as chemicals would be among the most exposed to volatility in crude prices, while fertilizer shortages would pose additional risks across food supply chains.