Why China Won't Rush Back to Persian Gulf Oil Even After the Strait of Hormuz Reopens

Strategic reserves are enormous. The U.S. Energy Information Administration estimates China held nearly 1.4 billion barrels of crude in strategic storage as of December 2025, adding an average of 1.1 million bpd to those inventories throughout 2025 . China does not disclose its official reserve data, but the EIA, Columbia University's Center on Global Energy Policy, and multiple analysts converge on a figure of roughly 1.4 billion barrels — roughly three times the size of U.S. strategic reserves . Erica Downs, a senior research scholar at Columbia, said that even in a worst-case scenario where Middle Eastern supplies are completely severed, these stockpiles could sustain the country for six months . During the Iran conflict, China appears to have tapped both strategic and commercial stocks — Kayrros estimated above-ground commercial inventories alone stood at 851 million barrels before the war — and that stored crude has directly reduced the need for fresh imports .

Refinery economics remain weak. Chinese refiners, especially the independent "teapot" refineries in Shandong province that are the core buyers of Iranian crude, have slashed run rates to multi-year lows. April 2026 crude throughput fell 5.8% year-on-year to about 13.3 million bpd, the lowest since August 2022, according to China's National Bureau of Statistics . State-owned refinery run rates plunged to 73.43% in April, a six-year low , while independent refiners cut rates to under 63% in early April — the lowest since August 2025 — with margins turning negative . By May, Shandong refinery utilization had dropped to around 51% . Refining losses amid weak domestic demand and high feedstock costs have made additional crude purchases unappealing .

Iranian discounts have narrowed and become less compelling. Before the conflict, Iranian crude was offered to Chinese buyers at deep discounts of $8–$10 per barrel below Brent, incentivizing heavy purchases . By June 2026, that discount had collapsed to around $1 per barrel as demand softened and independent refiners reduced operating rates . After the interim peace deal, sellers of Iranian oil to China cut prices again to attract buyers — offering spot cargoes of Iranian Light for July delivery at discounts of $2.50 to $5 per barrel below Brent . But buying interest from China's teapots remained "much tepid," with trade sources telling S&P Global that independent refineries were "in no hurry to secure more cargoes" and preferred to "shut for maintenance rather than shop the last few available cargoes" . The loss of deep sanctions discounts means Iranian crude no longer offers the same economic incentive.

Stored crude remains an important buffer. Chinese independent refiners have been actively acquiring discounted Iranian crude stored in onshore tanks, using newly allocated import quotas to draw down inventory rather than ordering new shipments . This stored crude — sold at discounts exceeding $8 per barrel in late 2025 — has helped ease oversupply pressures and reduces the urgency to seek replacement barrels from the Persian Gulf . The drawdown from storage is visible in the data: China's refineries processed roughly 13.5 million bpd in May while importing just 6.36 million bpd, meaning the 7 million bpd gap was filled almost entirely by stockpiles .

A rebound is expected later, not immediately. JPMorgan expects China's crude imports to rebound from August after the sharp drop to eight-year lows, but the bank notes the recovery will be gradual . China's independent refiners have gradually resumed inquiries for feedstock crude since the peace deal, but buying interest remains limited at current discounts . With storage tanks still full, refining margins negative, and strategic reserves providing a multi-month cushion, there is little evidence of the commercial or logistical pressure needed to trigger a sudden buying spree — even as Hormuz flows normalize.