Recent developments in the Middle East have led to increased volatility in global energy markets. The situation remains fluid and highly sensitive to geopolitical headlines. For investors, the focus should be less on predicting outcomes and more on understanding which economies are most exposed to sustained oil price volatility. Asia remains particularly vulnerable, given its heavy reliance on imported energy and key shipping routes such as the Strait of Hormuz.
Within Asia, China appears relatively better positioned. While it is the world’s largest crude importer and around 45% of its oil imports transit through the Strait of Hormuz, this accounts for only about 5% of its total energy consumption, compared with 10% for India, 25% for Japan, and 35% for South Korea. Moreover, China has been aggressively stockpiling crude, with plans to expand reserves by around 169 s million barrels in 2025 and 2026, nearly matching the 180-190 million barrels increase over the prior 5 years. Along with this month’s suspension of diesel and gasoline exports, these measures strengthen China’s ability to absorb higher oil prices compared with many regional peers.
In addition, China’s overall energy structure reduces its sensitivity to oil price movements. Around 60% of its total energy consumption is supported by coal, with almost all of it domestically produced, limiting reliance on imported fuels. Fuel pricing mechanisms further help absorb shocks. Under China’s domestic fuel pricing system, refiners absorb part of the cost once international crude prices exceed USD 80 per barrel, while fiscal subsidies can eliminate pass-through entirely when prices rise above USD 130 per barrel. At the same time, China continues to secure supply through diversified channels, including imports from Russia and Iranian flows, maintaining access even amid ongoing geopolitical uncertainty.
China is not completely insulated from higher oil prices, and a prolonged disruption would still raise input costs and weigh on growth. However, the relative impact is likely to be smaller than for its regional peers. Lower sensitivity to energy costs supports more stable corporate margins, while keeping inflation expectations relatively contained and preserving policy flexibility. On that basis, China’s lower structural sensitivity to oil price volatility and greater capacity to absorb energy shocks position it as a more resilient market within Asia. For investors with Asia-focused allocations, this suggests China may play a stabilizing role within portfolios during periods of energy-driven uncertainty.
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