How the Iranian Conflict is Dictating the Global Oil Price

The heightening military conflict involving the United States, Israel and Iran has triggered a severe global supply chain crisis. The effective closure of the Strait of Hormuz is causing unprecedented disruptions to international maritime trade, air cargo operations and various critical industries.

Currently, the Islamic Revolutionary Guard Corps is broadcasting radio warnings to prohibit all vessels from entering the strait. These actions have reportedly trapped approximately 170 container ships and brought 20% of the world’s seaborne oil supply to a standstill.

Regional vulnerabilities and pipeline alternatives

With nearly 22% of global crude output funnelling through the Strait of Hormuz, the waterway’s stability is paramount.

However, the risk of a shutdown is not shared equally among Gulf nations. While Saudi Arabia and the UAE can mitigate disruptions by redirecting some oil through overland pipelines, Kuwait, Qatar and Bahrain remain entirely dependent on the Strait. Without alternative export corridors, these countries are the most exposed to the economic fallout of a blockade.

While this is having a direct impact across the world, one must ask who is most affected now that a primary supplier of oil has become entangled in this.

China’s strategic buffer and Iranian reliance

Reuters reports that while China is the world's top crude importer and Iran’s primary customer, its record-high strategic stockpiles and floating storage act as a buffer against immediate supply shocks.

Reuters also reported that: "Roughly half of China's oil imports come from the Middle East.”

Last year, Beijing averaged 1.38 million barrels per day of Iranian crude, roughly 13% of its seaborne total, supplemented by an additional 42 million barrels held in Asian floating storage as of late January.

To hedge against supply shocks, China has aggressively expanded its strategic reserves. While official figures are classified, analysts estimate these stockpiles at 900 million barrels, providing a safety net of nearly three months of imports.

This dependency extends to the gas market, where China is the world’s top LNG importer, drawing a third of its supply from the Middle East.

One of the companies commenting on the situation is Petrobras, a Brazilian majority state-owned multinational corporation in the petroleum industry, which is headquartered in Rio de Janeiro.

As reported by Reuters, Chief ​Executive, Magda Chambriard, said in an interview: "It increases oil prices, for sure, but ​Petrobras historically does not pass through sudden oil prices volatility."

Reuters' own sources stated that Petrobras was closely monitoring the fallout from the conflict in Iran and expects to watch oil prices for ​the next week before taking decisions on fuel prices.

Diplomatic pressure and global economic fallout

Beijing is reportedly leaning on Tehran to keep the Strait of Hormuz open, specifically protecting Qatari energy exports from regional spill-over. According to Bloomberg, Chinese state-owned gas executives say the government has urged Iran to avoid targeting tankers or key export hubs in the narrow waterway. While China remains the primary buyer of Iranian oil, its broader energy security relies on the stable flow of Gulf crude and LNG through the Strait.

Chinese refiners currently absorb nearly all of Iran's 1.6 million barrels of daily crude exports, accounting for roughly 13% of China's total seaborne oil imports. Despite rising regional tensions, the Wall Street Journal reports that Iran continued loading tankers over the weekend – a signal that Tehran intends to maintain its crude flow even as other maritime traffic in the area slows.

While it appears that China would be most affected by this, given its purchase history, the situation is having an impact around the world. Citizens are reporting a surge in the cost of heating their properties, while the price of petrol is set to increase for fleet management.

While it may be clear to see who is buying the oil in Iran, it is equally clear that people around the world will be paying the price as this conflict unfolds in the Middle East.