China's Record Oil Prices and the Loss of Supply Backups

Oil prices in China have climbed to record highs after disruptions to Middle East exports narrowed Beijing's supply options.

Saudi Arabia shut a pipeline that carries crude across the Arabian Peninsula to the Red Sea after attacks by an Iran-backed group in Iraq, according to reporting published Sept. 17. Al Jazeera The line had been moving oil to China and other Asian markets while exports through the Strait of Hormuz, a narrow waterway that carries much of the world's oil, were restricted. Iran has effectively blocked oil flows through the strait.

The closure showed up in physical shipments. Shipping industry sources reported disrupted crude loadings at Yanbu, Saudi Arabia's export hub on the Red Sea, and oil prices settled $3 higher, Reuters reported on Sept. 15. Prices had already topped $100 on worries over conflict-driven supply disruptions.

China entered the disruption heavily dependent on imports but with large stored volumes. Before the war, China was importing roughly 12 million barrels per day and producing another 4.4 million barrels per day domestically. Crude stockpiles had grown to an estimated 1.4 billion barrels by the end of last year.

Beijing is now drawing on those reserves and seeking other supplies as shipping disruption continues. China's crude imports averaged 8.1 million barrels per day in the second quarter, almost 4 million barrels per day or 32 percent lower than the first quarter, according to the U.S. Energy Information Administration.

Chinese refiners are buying one-time purchases, known as spot cargoes, of Russian Pacific coast oil as their options narrow, Bloomberg reported Sept. 10. The asking price for oil from Russia's Pacific coast is soaring.

Demand is shifting at the same time. China's oil demand is expected to fall by 600,000 barrels per day, or 3.9%, in 2026, marking a third straight annual decline, according to Sinopec research. In a September 2026 statement, China's foreign ministry said China had reduced crude oil imports, significantly alleviating upward pressure on international oil prices.

The supply loss extends beyond China. The International Energy Agency said global oil supply would drop by 8 million barrels per day in March due to the Strait of Hormuz blockade. The U.S. Strategic Petroleum Reserve, the country's emergency stockpile, dropped to 298.7 million barrels in the week ending in August 2026, below 300 million barrels to a 43-year low.

On domestic production, test drilling at China's newly discovered South China Sea oilfield yielded 413 barrels of crude oil per day and 68,000 cubic meters of natural gas per day. China's largest underground commercial oil reserve project is scheduled to be put into service by the end of 2026.

On diplomacy, Chinese Foreign Minister Wang Yi held talks in Beijing with Iranian Foreign Minister Abbas Araghchi ahead of talks between Xi Jinping and Donald Trump.

The broader context here is a supply system built around backups that is losing those backups one by one. Hormuz was the central chokepoint. The trans-peninsula pipeline served as the bypass. Yanbu was the outlet. With all three impaired in quick succession, China faces a logistics problem as much as a volume problem. Barrels exist. Loadable barrels do not.

Looking at what this means for leverage, Beijing has two cushions and both erode with time. Stockdraws can cover import shortfalls for months, not indefinitely, and the 8.1-million-barrel second-quarter import rate points to the pace of use. Demand contraction helps. A 600,000-barrel-per-day decline trims the need to draw stocks or buy on the open market. Russian Pacific volumes help more directly because they avoid Hormuz and the Red Sea entirely. The cost is price. Soaring asking prices there transfer the disruption premium straight to Chinese refiners.

In my view, the Wang-Araghchi meeting and the coming Xi-Trump talks frame the next variable to watch. China has positioned its import restraint as a stabilizing force for world prices. Whether Washington and Tehran treat energy flows as a separate channel from wider confrontation will shape how long Beijing must rely on reserves, spot barrels, and lower consumption to get through the outage.