In recent years China has emerged as the world’s first electro-state, its economic power and strategic influence increasingly resting on electricity rather than fossil fuels. It has become the industrial centre of gravity of the global energy transition through its dominance of solar manufacturing, batteries, electric vehicles (EVs), critical mineral processing and other clean energy technologies, combined with the rapid electrification of its transport and industrial sectors.
And the Middle East war has revealed an unexpected consequence of this shift, namely China’s growing influence over the global oil market itself. The energy supply shock that was widely expected to send crude prices soaring has instead exposed how much China’s energy transition has changed its ability to shape the global oil price.
When conflict first erupted and shipments through the Strait of Hormuz were disrupted, the world braced for a major oil shock. In addition to the closure of the strait, long-term damage to regional energy infrastructure, Houthi attacks on Saudi shipping in the Red Sea and Ukrainian strikes on Russian refining capacity all compounded the energy market turmoil. The International Energy Agency (IEA) described it as the largest oil market disruption in history.
While Brent crude has periodically spiked above $100 a barrel, the surge in oil prices has proved to be both less extreme and less persistent than widely predicted, falling well short of industry analysts’ warnings that prices could soar above $150 given the scale of the disruption.
Emergency releases from strategic stockpiles, additional non-Opec+ supply and weaker expectations for global oil demand all helped contain the global supply shock. But an increasingly important factor was China’s ability to reduce its exposure to the crisis by sharply cutting its oil imports.
The China factor
This flexibility reflects a structural shift far deeper than the rise of EVs or the exponential growth of renewable energy. China has spent years reducing its structural dependence on crude through electrification, alternative energy sources and industrial substitution, while simultaneously building the reserves and infrastructure needed to manage its exposure to global oil markets. The result is not an economy that no longer needs oil, but one with far greater flexibility over when and how much crude it buys.
The IEA estimates that China’s EVs displaced about 1-million barrels a day (b/d) of oil demand in 2025, about 15% of road transport fuel consumption, and that the vehicles are set to displace 2.7-million b/d by 2030. High-speed rail travel has replaced millions of car journeys and short-haul flights, industrial processes are steadily electrifying and renewable electricity now provides nearly 40% of China’s power. China still consumes vast quantities of oil, but its oil intensity — measured as oil use per unit of GDP — has fallen by nearly 40% since 2010.
But electrification is only part of the story. The US Energy Information Administration estimates that China had accumulated about 1.5-billion barrels of oil inventories by the end of the first quarter of 2026, dwarfing the US’s 413-million, giving Beijing the ability to draw on stocks and reduce purchases when prices rise. A highly flexible refining sector allows China to lower runs when margins weaken, while alternative feedstocks and domestic energy sources provide further room to manoeuvre.
Together, these capabilities mean China can reduce oil imports even when its underlying need for oil has not fallen by the same amount.
Coal adds another layer of resilience. China’s abundant domestic reserves help keep coal central to its energy system. Crucially, China has developed large-scale technologies that allow coal to substitute for oil and gas in parts of the chemicals and fertiliser industries, giving China a home-grown alternative when crude becomes scarce or costly.
All of this reflects decades of policy aimed at strengthening energy security. China has not simply invested in renewables but has instead built a diversified energy system designed to reduce vulnerability to external shocks.
Reduced exposure
The incentives to use that flexibility have been unusually strong during the current Middle East crisis. Weak consumer demand and a prolonged property sector downturn have made exports and manufacturing increasingly important drivers of Chinese growth. A sustained oil price spike would raise transport and production costs, squeeze households and domestic businesses and heighten the risk of a global recession — threatening China’s crucial export engine.
China has therefore faced the Middle East crisis with both the capacity and the incentive to reduce its exposure to oil imports. Its structural shift away from oil meant that some demand could be avoided altogether, while its inventories, refining flexibility and broader energy-security strategy gave it additional ways to reduce crude purchases without an equivalent reduction in underlying oil consumption.
According to The Economist, between February and June this year China cut its crude imports by half, or about 5.5-million b/d, drawing on its vast inventories while also curbing domestic fuel demand and refined product exports. Industry experts estimate that this may have shaved $30 or more off the price of Brent crude. For context, The Economist notes that the cut was equivalent to more than half the worldwide decline in oil demand during the Covid lockdowns.
For decades the global oil market was shaped primarily by producer power. Opec set the framework, but major Gulf exporters — notably Saudi Arabia — influenced prices by controlling the marginal barrel of supply, the last barrel needed to balance the market and therefore the one that sets the price. The Middle East conflict has highlighted a different but equally important form of power: the ability to withdraw the marginal barrel of demand. As the world’s largest crude importer, China has demonstrated that it can reduce its purchases on a scale large enough to influence global prices and do so without inflicting meaningful damage on its own economy.
China has not replaced Opec — despite The Economist’s quip: “Forget Opec. The Communist Party calls the shots.” But its growing demand‑side flexibility changes the balance of power in the oil market. China’s transformation into an electro-state has not made it independent of oil, but it has given Beijing far greater flexibility over when and how much crude it buys. Paradoxically, the less structurally dependent it becomes on oil, the greater its influence over the market for it.
Economic resilience
For South Africa these shifts are a stark reminder of our vulnerability to volatility in global energy markets. This country remains heavily reliant on liquid fuels for transport and imports almost all its crude, leaving the economy exposed when global oil prices spike. Price shocks feed directly into petrol and diesel costs, inflation rises, logistics costs increase and the trade balance deteriorates. Though the shift towards cleaner energy is gaining momentum, South Africa has yet to reach the level of transport and industrial electrification needed to materially reduce its dependence on imported fuels.
China’s experience shows what a difference that dependence makes. Electrification is not simply an environmental goal but a source of economic resilience in an increasingly erratic global energy order. A country that can substitute electricity and other domestic energy sources for imported oil has far more room to manoeuvre when geopolitics become unstable. South Africa is widely acknowledged as having world-class renewable resources and a latent comparative advantage in a more electrified economy. Turning that potential into resilience will require treating electrification as a strategic priority.
China is the first major economy able to influence the global oil price by withdrawing demand, but that power may soon be tested. Iran appears willing to let the conflict drag on for months or even years, while President Donald Trump has suggested the US is “low-keying it” or “semi‑negotiating”, offering no credible path to a ceasefire.
China’s inventories are large but finite, and at some point it will have to rebuild them, turning recent demand destruction into a demand surge. If that moment arrives while Middle Eastern supplies are still constrained, the impact on prices could be dramatic.
