Tim’s view
The market fallout from the war in Iran is a testament to the long-term strengths of China’s energy security strategy. China is the world’s top importer of oil and LNG, so the runup in oil and gas prices, if it lingers for long, will exact a cost. But as Columbia University’s Jason Bordoff recently observed, China has been preparing for a moment like this for years, with a multipronged strategy aimed at reducing its exposure to global energy price volatility and positioning itself as a more reliable trading partner than the usual cast of fossil fuel exporters, including the US.
China has enough oil in onshore storage to serve its needs for more than two months, plus a record volume of sanctioned oil from Russia, Iran, and Venezuela that is currently parked in tankers offshore. It also produces more oil domestically than Japan and other regional rivals. Meanwhile, it’s by far the world leader in deployment of EVs and renewable energy, which has helped to equip it with an economy that consumes far less oil per unit of GDP than the US. And it is aggressively shopping this hardware around the world.
Middle-income countries can learn an important lesson from this moment, similar to the one Europe learned in 2022 following the invasion of Ukraine. Obviously there are risks with all kinds of energy imports, and some European leaders have been vocal about not wanting to replace reliance on Russian or even US fossil fuels with dependence on Chinese clean tech.
But not all dependencies are equivalent. Fossil fuels are inherently volatile in price and always will be. The muted effect of all the maneuvering by the Trump administration in recent days to tamp down oil prices is evidence of how little power it ultimately possesses to meaningfully control the global market after disrupting the normal flow of trade; even if the military situation calms down soon, some Gulf producers have already begun to shut down wells, which will take time to restart and which in some cases may never return to pre-war levels.
All of this makes a compelling argument in favor of turning to an electrostate like China as your energy equipment supplier — especially since power from renewables, once they’re installed, doesn’t vary in price when geopolitical winds shift. That argument even applies to the US itself, since simply drilling more at home doesn’t provide full cover for US consumers.
Notable
- China’s new five-year plan, released last Thursday, doubles down on the importance of stockpiling for Beijing’s energy security: “[China will remain] committed to ensuring self-sufficiency in meeting the core demand for oil and gas, implementing medium- and long-term strategic actions to expand reserves and ramp up production,” the draft plan said.