In Suetonius's Life of Vespasian, the emperor's son, Titus, protested that his father was taxing the city's urine collection workers. Vespasian placed a gold coin to Titus' nose: does it smell? Money does not grow on trees. Money doesn't smell. For nearly a decade, China has acquired Iranian crude, which is sanctioned by the West, at a discount and frequently rebranded as "Malaysian blended oil" to avoid scrutiny. This has been done with no apparent embarrassment about the source. Iran accounted for around 13% of China's seaborne crude imports in 2025 (Kpler). The discount was the point. The odor, if there was one, was tolerable.

The conflict, which began on February 28 with US and Israeli jets striking Iran, has not altered the underlying rationale. However, it has made significant changes to arithmetic. In eight days, it has caused the sharpest oil price shock since Russia's 2022 invasion of Ukraine, shook stock markets on three continents, pushed governments to release emergency reserves, and raised a question that Beijing had spent two decades preparing to answer: what happens when the Strait of Hormuz closes?
A panic-stricken world.
In A Scandal in Bohemia, Holmes recognized that theorizing without data is a grave mistake. The data is now available. Brent crude rose over 50% in eight days, reaching $119.50 per barrel on Monday, the highest level in four years.West Texas Intermediate traded in lockstep, momentarily reaching $119.48. Both dropped to approximately $105 after the Financial Times reported that G7 finance ministers were holding an emergency call to discuss synchronized reserve releases.
In just one week, the average American gasoline price increased from $2.98 to $3.45 a gallon. Iran has effectively closed the Strait of Hormuz. Typically, it transports around 20% of global crude, 30% of Europe's aviation fuel, and 20% of global LNG. Iraq, the UAE, and Kuwait have reduced production. Tankers sit fully laden, with nowhere to go.
The International Monetary Fund's (IMF) model for such a shock is straightforward.If oil prices continue to rise by 10%, worldwide inflation rises by 0.4%, and global economic growth slows by 0.15 percent. Oil is up 50%. Japan's Nikkei plummeted by up to 7%. South Korea's KOSPI fell 8%, while US share futures dropped roughly 2%. Qatar's energy minister warned that the war might "bring down the world's economies". Iran's Revolutionary Guard has threatened $200 per barrel if attacks on energy infrastructure continue.
The IEA's Job
The International Energy Agency (IEA) was established in 1974 as a direct result of the Arab oil embargo to build a buffer specifically for such emergencies.Its 32 members jointly retain 1.24 billion barrels of public strategic stocks, as well as 600 million barrels of industrial reserves, enough to cover member countries' net imports for more than 140 days. The United States and Japan collectively account for over 700 million barrels of that total. On Monday, G7 ministers considered releasing 300-400 million barrels in a concerted action. This would be the sixth such release in 52 years, which demonstrates how terrible the issue is and how rarely they use this specific lever.There is a domestic comedy running parallel to the geopolitical tragedy in the United States. Trump, who campaigned relentlessly on the cost of living, posted on Truth Social that the oil price increase was "a very small price to pay for U.S.A. and World Safety and Peace" and that "ONLY FOOLS WOULD THINK DIFFERENTLY." Keynes wrote in A Tract on Monetary Reform (1923) that "in the long run we are all dead." He was making a case for macroeconomic patience. Trump's long run appears to be rather brief when compared to a weekly increase in gasoline prices of 47 cents.
In an interview with Axios, a Trump adviser provided an interesting perspective. "The president dislikes the attack. He wants to preserve oil. "He does not want to burn it."The action in question was Israel's strikes on 30 Iranian gasoline stations in a single Saturday operation, which the US military had not anticipated in terms of extent or number, prompting a message between allies that is not appropriate for publication. The depots ignited fires visible for miles and dumped a hazardous black rain on Tehran. Tacitus, writing of Rome's battles in Britain, reported the remark that has survived two millennia: "ubi solitudinem faciunt, pacem appellant," which translates to "they make a wasteland and call it peace." In Through the Looking-Glass, Lewis Carroll's Humpty Dumpty explains semantics: "When I use a word, it means just what I choose it to mean - neither more nor less." Trump's use of the term "temporary" implies something. What exactly have markets failed to believe.

China’s Enviable Position
China is, as one observer put it without sarcasm, "materially exposed but more flexible". The flexibility comes first. China has an estimated 1.1 to 1.4 billion barrels of strategic and commercial reserves, or about 140 days of import demand, roughly double the level a decade earlier.
In February, the US Energy Information Administration said that Beijing has been increasing inventories by almost one million barrels per day through 2025. The structural insulation goes deeper than the reserves. Nomura's chief China economist thinks that Hormuz oil accounts for only 6.6% of China's total energy consumption. China's electric vehicle revolution has displaced more than one million barrels per day of predicted oil consumption.

But It Still Has Other Concerns.
The exposure, however, extends far beyond energy. From 2019 to 2024, China invested $89 billion directly in the Middle East (Eurasia Group). By 2023, its Middle East loan portfolio had quadrupled to 10% of its global total. Chinese banks are subsidizing Qatar's North Field East LNG facility, which was accidentally struck last week. Chinese firms own and operate terminals at Israel's Haifa Port and the UAE's Khalifa Port. China is the region's major desalination investor, with projects in Saudi Arabia, the UAE, Oman, and Iraq now being pursued. Cosco has canceled bookings across the strait. Maersk has suspended vital routes. Baidu has suspended robotaxi services in the Emirates. Over 3,000 Chinese nationals have been evacuated from Iran.

Everything is now in the firing line.
Iran, it should be noted, relies more on China than China does on Iran. More than 80% of Iran's exports go to China (Kpler). Blocking the Strait of Hormuz for any period of time harms Iran as much as it does others. Up to 70% of Iran's non-oil trade comes through ports around the strait. Iran's threat of $200 oil is partly directed at itself.
Into Putin's arms?
For China, the long-term impact of this battle is unlikely to be a price shock, but it now has little alternative but to accelerate its strategic course. Russia already supplies 20% of China's petroleum, making it the country's single largest supply.Chinese oil companies have been quietly expanding Russian imports for several weeks. CNPC is reopening a mothballed refinery in Dalian expressly to accommodate increased Russian volumes. The Power of Siberia 2 pipeline (Russian gas through Mongolia to China, projected in the early 2030s) is likely to be built sooner.
Needless to say, China is in a slightly weaker situation. Moscow may now pressure Beijing to pay a higher price for Russian oil and gas. Regardless of the military outcome, the war on Iran appears to be pushing the world's second-largest economy further into Russia's arms.
The IEA reserve system, which was constructed in 1974 to keep the lights on during a crisis, was specifically designed for this purpose.