China: Energy shock cushioned but PBoC constrained – ABN AMRO

ABN AMRO analysts argue China is exposed to Iran-related Oil and LNG disruptions but cushioned by large reserves, diversified imports and rising renewables. They note Beijing’s diplomatic push to stabilise the Strait of Hormuz and warn that a firmer inflation path from higher energy costs would likely make the PBoC more cautious about further piecemeal monetary easing.

Reserves buffer, policy easing room narrows

"Being the world’s largest oil and LNG importer, China is vulnerable to disruptions in the production and transport of energy in/from the Middle East, and the related spike in oil and gas prices. China imports 73% of its oil needs, and the share of imports coming from the Middle East is estimated at around 40%, with Saudi Arabia, and Iraq the key suppliers. The total share of China’s oil imports coming from Iran is estimated to be around 10%."

"As around one-third of oil and around one-quarter of LNG flowing through the Strait of Hormuz is destined for China, Chinese officials have not surprisingly called on ‘all sides’ of the Iran war to immediately ease military operations, avoid a further escalation and ensure the safe passage of ships through the Strait of Hormuz."

"There are also some cushioning factors for China. The country has been stockpiling energy massively when prices were relatively low, and its total oil reserves are estimated at around 80 days of consumption. Its diversified import base also helps, and it looks likely that China can increase oil imports from Russia relatively easy."

"Moreover, China also has other energy sources at its disposal. The share of electricity created by renewable energy, for instance, has risen sharply over the past few years, to almost 40% in 2025, as China has positioned itself as a global leader in the energy transition."

"Nevertheless, last week the Chinese government told large oil refiners to suspend the exports of diesel and gasoline in light of the Middle East conflict. Furthermore, while a (sustained) shock in oil and gas prices would undoubtedly be inflationary, China’s starting point in terms of inflation is more favourable levels compared to for instance the US or Europe. Still, a firmer inflation path would probably make the PBoC even more cautious in terms of additional (piecemeal) monetary easing."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)