China’s Oil Strategy Cushions Europe from Price Spikes
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China's Oil Strategy Cushions Europe from Price Spikes
- China's use of its strategic petroleum reserves and reduced refinery runs have helped prevent global oil prices from surging even higher amid recent supply concerns.
- This strategy, alongside long-term efforts to diversify energy sources and accelerate clean energy adoption, aims to reduce China's dependence on imported fossil fuels.
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Recent global events, including the closure of the Strait of Hormuz in late February 2026, have highlighted vulnerabilities in global oil supply chains and put upward pressure on crude oil prices. However, global oil prices have not seen the dramatic surge many analysts initially predicted. Market researcher Rory Johnston, in the Commodity Context newsletter, suggested in May 2026 that China may be tapping its strategic petroleum reserves (SPR) to inject crude into the market, thereby helping to stabilize prices. China’s SPR, which is not publicly declared, is thought to be among the world’s largest, potentially holding 1.2-1.5 billion barrels.
Beyond releasing reserves, China has also implemented other measures. In the second quarter of 2026, Chinese refiners significantly cut crude processing, with runs down approximately 1.6 million barrels per day year-over-year. This reduction in refinery activity, partly driven by weaker margins due to domestic price adjustments and product export restrictions, helped to keep crude prices from spiking further. Additionally, China restricted refined product exports to ensure domestic supply, leading to significant year-over-year declines in exports of diesel, gasoline, and jet fuel during April, May, and June 2026.
In the long term, China has been strategically working to reduce its reliance on imported fossil fuels since at least 2011, with a commitment to building a domestic manufacturing base and grid for electricity to displace imported oil and gas. This includes substantial investments in renewable energy technologies, with China installing 278 gigawatts of solar capacity in 2024 alone. In 2024, wind and solar electricity generation in China rose by 25% compared to the previous year, and by the first half of 2025, it was 27% higher than in the first half of 2024. These efforts are part of China’s broader energy security strategy, which also includes diversifying energy sources and building strategic reserves.
In contrast, Europe remains significantly exposed to oil and gas price shocks, with approximately 57% of its total energy supply coming from these sources. The closure of the Strait of Hormuz particularly impacted Europe’s jet fuel supply, with roughly 40% traveling through the strait and about 75% of the continent’s aviation fuel imports originating in the Middle East. Jet fuel prices in Europe rose 130% year-on-year by April 2026, and several European airports have been instructed to prepare for no-fuel scenarios. The European Commission proposed the AccelerateEU plan in April 2026 to increase coordination, support consumers, and accelerate the transition to clean energy.