China faces oil challenge as prices soar and supply options narrow

Oil prices in China have surged to record highs amid mounting disruptions to exports from the Middle East, as Beijing faces an increasingly difficult balancing act between securing its own energy supplies and preventing global oil prices from climbing even higher.

Saudi Arabia has been forced to shut a key pipeline that had become an important route for getting oil to China and other Asian markets while disruption in the Strait of Hormuz restricted exports through the Gulf. The pipeline, which carries crude across the Arabian Peninsula to the Red Sea, was shut following attacks by an Iran-backed group in Iraq.

Its closure leaves two vital routes for Middle Eastern oil to China both disrupted in the midst of the US-Israel war on Iran and conflicts in the wider region. With access to Russian and Iranian crude also complicated by United States sanctions and other restrictions, Chinese refiners are being forced to search further afield for supplies. That scramble for available barrels is adding to pressure on oil prices, both in China and globally.

With China increasingly forced to compete for replacement supplies – risking pushing prices still higher – restoring oil flows through the Strait of Hormuz, which Iran has effectively blocked, has become a pressing economic and diplomatic priority for Beijing ahead of talks between Chinese President Xi Jinping and US President Donald Trump, say analysts. The meeting follows talks in Beijing on Wednesday between Chinese Foreign Minister Wang Yi and his Iranian counterpart, Abbas Araghchi.

“What is happening in the Middle East is not good for China,” energy analyst Marc Ayoub told Al Jazeera. “China is in a critical situation,” he said, with refiners increasingly “looking into the market for players outside of Hormuz”.

Before the war, China was importing roughly 12 million barrels of crude a day and producing another 4.4 million barrels domestically, Reuters reported. It was buying more oil than its refineries needed, allowing Beijing to funnel some of the surplus into vast stockpiles that had grown to an estimated 1.4 billion barrels by the end of last year.

That helped cushion the impact on the wider oil market. As the world’s largest crude importer, China’s decision to buy fewer barrels removed demand at precisely the moment global supplies were being squeezed.

Trita Parsi, executive vice president of the Quincy Institute for Responsible Statecraft, told Al Jazeera, “It lies in their interests that this conflict the United States started does not lead to a global recession.”