China's long-term strategy of diversifying energy sources and building reserves showcases its adaptability to disruptions caused by the war with Iran, although some sectors still face significant challenges, analysts say.
As a net oil importer, more than half of China's maritime crude imports came from the Middle East last year, according to analytics firm Kepler. The conflict ignited by Israel and the United States against Iran has led to a near-total halt of shipments from the Gulf region for six weeks now, with a fragile ceasefire reached this week that is unlikely to lead to an immediate recovery.
Event Details
However, Beijing's long-standing focus on energy security has prepared it well for such shocks, analysts told AFP. Moyou Xu, chief oil analyst at Kepler, noted that the general concern over the geopolitical situation in recent years has driven Chinese leaders to ensure the establishment of adequate storage facilities and build strategic reserves.
She added that these efforts mean China is now in a much better position compared to some of its Asian neighbors, such as Japan and the Philippines. However, she pointed out that Beijing has not been in a hurry to start using its large strategic reserves.
Background & Context
This is partly because China's decades-long mission to reduce its traditional reliance on coal and fossil fuels is beginning to bear fruit. The extensive efforts towards renewable energy mean that China is in a relatively good position to handle the current situation, according to Lauri Myllyvirta, co-founder of the Centre for Research on Energy and Clean Air.
Significant capacities of wind, solar, and nuclear energy have been added to populous coastal provinces, alongside improvements in the infrastructure of networks that transport electricity from inland areas. Myllyvirta stated that without these efforts, more oil and gas would have had to be imported to operate those provinces.
Impact & Consequences
Despite some ongoing dependencies, including in the massive manufacturing sector, renewable energy is helping significantly on the margins, he said. Li Xu, director of the China Climate Centre at the Asia Society, mentioned that the current energy crisis underscores the validity of China's long-term strategy based on diversifying all sources.
President Xi Jinping aims to further leverage the expansion of renewable energy as geopolitical disruptions escalate. On Monday, state broadcaster CCTV aired a report quoting Xi's call to accelerate the construction of a 'new energy system' to ensure energy security, without mentioning the Middle East war.
Regional Significance
For Beijing, the 'most serious risk' does not lie in immediate energy shocks but in the potential for a global economic slowdown due to the conflict, according to Li from the Asia Society. Certain sectors are expected to be inevitably affected, creating new challenges for leaders seeking to revive sluggish economic activity.
Among these sectors are private 'small refineries' that have historically benefited from access to discounted Iranian and Venezuelan oil under sanctions. The loss of Iranian oil could be a knockout blow for many of these operations, which are primarily concentrated in the eastern province of Shandong, already suffering from the repercussions of U.S. military intervention in Venezuela this year.
In conclusion, despite the challenges facing China, its strategy of diversifying energy sources may provide it with greater flexibility in facing future crises, making it a model for dealing with geopolitical crises.