Key Takeaways:
China has emerged as a relative winner from the 100-day Strait of Hormuz crisis, with its crude imports plunging 40% in May to 6.7 million barrels a day — a drop of 4 million bpd equivalent to the combined consumption of Germany and France — even as the reopening of the waterway unleashes a chaotic flood of supply that threatens to overwhelm global markets.
"The asymmetry of the shock has been striking — China's demand destruction was already underway before the conflict, which insulated it from the worst of the supply disruption," said Elena Fischer, a geopolitical risk analyst covering trade policy and sanctions. "For import-dependent peers like India, Japan and South Korea, there was no such buffer."
Brent crude has slid back to around $73 a barrel, near pre-war levels, after the U.S.-Iran interim deal reopened the Strait of Hormuz on June 17. But the apparent calm masks a market struggling to reboot. Dozens of tankers stranded inside the Gulf have rushed to exit — U.S. Energy Secretary Chris Wright said flows briefly exceeded pre-war levels of 20 million barrels per day — while inbound vessels needed to load onshore crude remain scarce. For every four tankers leaving the region last week, only one entered, according to LSEG ship-tracking data.
The last comparable supply shock was Russia's invasion of Ukraine in 2022, which sent Brent above $130 a barrel. This time, a pre-war oversupply of 3 million to 4 million bpd — built on U.S. shale output and OPEC+ production hikes — provided an invaluable cushion, preventing prices from spiking to the $200 level many had forecast.
China's Demand Pivot
China's import collapse predated the Feb. 28 outbreak of hostilities. The country had already been cutting crude purchases amid a sluggish economic recovery and a rapid build-out of renewable energy capacity. That 4 million bpd demand gap — roughly the consumption of Germany and France combined — meant China faced far less pressure to scramble for alternative supplies when the Strait of Hormuz was effectively closed.
By contrast, India — the world's third-biggest crude importer — had no such luxury. Its state-run refiners absorbed more than 50% of the international price spike for over two months before raising domestic fuel prices by a modest 7.50 rupees a liter for petrol and diesel. The three state-run oil marketing companies — Indian Oil Corp., Bharat Petroleum Corp. and Hindustan Petroleum Corp. — incurred estimated net under-recoveries of 40,000 crore to 45,000 crore rupees between March and May, according to Crisil Ratings, nearly equivalent to their combined annual profits.
From Shortage to Glut
The supply picture is now swinging violently in the opposite direction. Rystad Energy estimates shut-in production across the Gulf fell to 9.6 million bpd by mid-June from 11.7 million bpd three weeks earlier, with a full return to pre-war output expected by December. Iran alone could reach 3.3 million bpd by year-end if sanctions relief holds, according to Rystad.
Yet refineries in Asia and Europe have already secured most of their crude for July and August, leaving the extra barrels with nowhere to go. Many tankers may have to remain at sea as floating storage, keeping those barrels off the market for weeks. Last week, August Brent futures traded below the September contract — flipping into contango for the first time since the war began — signaling expectations of a short-term mini-glut.
The medium-term outlook is even more daunting. Global supply is forecast to fall by 3.9 million bpd in 2026 but rebound by about 8 million bpd in 2027 to roughly 110.3 million bpd, according to the International Energy Agency. Demand, by contrast, is expected to recover far more modestly, creating a potential surplus of roughly 5 million bpd next year.
Lingering Risks
The fragile 60-day truce has already been tested. Iranian forces fired on a Taiwanese cargo vessel transiting the strait on June 25, sparking tit-for-tat strikes with the United States. Although traffic resumed quickly, many shipowners and charterers remain wary of sending vessels back into the Gulf. The temporary arrangement — under which transit is supposed to be unimpeded and toll-free for 60 days while Tehran negotiates a longer-term framework with Oman — leaves ample room for uncertainty.
For China, the crisis has reinforced its strategic calculus: reduce dependence on Middle Eastern oil by diversifying supply sources and accelerating the energy transition. For India and other Asian importers, the episode has exposed the vulnerability of relying on a single chokepoint for a fifth of global oil and gas flows — a lesson that will shape energy policy for years to come.
This article is for informational purposes only and does not constitute investment advice.
