China and the United States' Oil Reserves May Help Soften the Impact of an Iranian Supply Disruption

How China and the U.S. Are Positioned for a Potential Middle East Oil Crisis

As the two largest importers of crude oil globally, China and the United States both maintain substantial strategic reserves that could help them weather a supply shock from the Middle East, should tensions between the U.S. and Iran escalate into military action.

Any interruption in oil shipments from this vital region would likely drive prices above the current seven-month high of $71 per barrel for Brent crude. If diplomatic talks between the U.S. and Iran break down, market volatility could intensify, especially in today’s environment of algorithm-driven trading.

However, industry experts believe that only a tangible disruption in oil supplies would push prices to $100 per barrel or higher.

Some analysts warn that, if Iran perceives a U.S. offensive as a threat to its survival, it might retaliate by targeting oil infrastructure in neighboring countries, further destabilizing the region.

Should global supplies tighten, both China and the U.S. have the capacity to tap into their reserves to help stabilize prices, at least temporarily, according to Reuters columnist Ron Bousso.

U.S. Strategic Petroleum Reserve: A Key Buffer

The U.S. Strategic Petroleum Reserve (SPR) currently contains about 415 million barrels of crude oil—less than 60% of its 714 million barrel capacity, as the country gradually replenishes stocks after significant releases in 2022 during the early stages of the Russia-Ukraine conflict.

Despite being only slightly over half full, the SPR holds enough oil to cover roughly 200 days of U.S. net crude imports, which far exceeds both historical averages and the International Energy Agency’s requirement for member countries to maintain at least 90 days’ worth of net imports in reserve.

If the President authorizes an emergency drawdown, the Department of Energy can organize a competitive sale, award contracts, and begin delivering oil to the market in as little as 13 days. The SPR can release oil at a maximum rate of 4.4 million barrels per day for up to 90 days, after which the rate decreases as storage caverns are depleted. At a rate of 1 million barrels per day, the SPR could supply the market for nearly 18 months, according to the DOE.

This option could be considered by President Donald Trump if a prolonged conflict with Iran causes oil prices to surge, especially with mid-term elections approaching and gasoline prices already under scrutiny as electricity costs continue to rise, contrary to previous campaign promises.

China’s Expanding Oil Stockpiles

China has reportedly been building up its crude oil reserves—both commercial and strategic—for nearly a year, capitalizing on lower global prices and discounted supplies from sanctioned countries like Iran, Venezuela, and Russia.

With Venezuela now selling oil under U.S. oversight, China has shifted to record imports of Russian crude, as India reduces its purchases.

While the exact size of China’s oil inventories remains undisclosed, analysts estimate that Beijing sent at least 1 million barrels per day into storage last year, taking advantage of low prices and expanding storage capacity.

Prepared for Market Turbulence

With their significant reserves, both China and the U.S. are better equipped than most to handle a brief, intense crisis in Iran, should diplomatic efforts fail and military action ensue.

Experts do not discount any scenario—from limited strikes to a broader conflict, Iranian retaliation against oil infrastructure in Saudi Arabia, the UAE, or Kuwait, or even an attempt to block the vital Strait of Hormuz.

Diplomacy or Conflict?

On the eve of negotiations in Geneva, Iranian Foreign Minister Abbas Araghchi expressed optimism about reaching a historic agreement that addresses both sides’ concerns, emphasizing that a deal is possible if diplomacy is prioritized.

Nonetheless, the oil market remains on edge, anticipating the possibility of a U.S.-Iran confrontation in the near future.

By Tsvetana Paraskova for Oilprice.com

Further Reading from Oilprice.com

• Woodside Warns LNG Glut Fears May Be Overstated
• Eni Set to Approve Two Gas Projects Offshore Indonesia
• Oil Prices Hit 7-Month High on U.S.-Iran Standoff

Stay Ahead of the Market

Oilprice Intelligence offers early insights before they make headlines. This expert analysis is trusted by seasoned traders and policy advisors. Subscribe for free, twice a week, and gain an edge in understanding market movements.

Receive exclusive geopolitical analysis, inventory data, and insider market trends that influence billions of dollars. Plus, get $389 worth of premium energy intelligence at no cost when you join over 400,000 readers. Sign up now for immediate access.