China could come out on top – or at the very least vindicated – as a result of the United States’ and Israel’s war in Iran. As the world reels from skyrocketing oil prices and general energy market volatility, China is reaping the rewards of the huge energy stockpiles that it has been hoarding for years in case of just such a crisis. China’s ‘supergrid’ could not only buffer the world’s second-largest economy from energy market fallout, it could make China a major economic winner at the end of the day.
As the United States and Israel bombard Iran with missile strikes, Iran is fighting back with the most powerful geopolitical leverage it has – the Strait of Hormuz. About one-fifth of the world’s oil and gas passes through the narrow waterway, and Iran has slowed that trade to a trickle as the war rages on. Iranian Foreign Minister Abbas Araghchi says the Strait of Hormuz “is open, but closed to our enemies, to those who carried out this cowardly aggression against us and to their allies.”
But while the Strait of Hormuz has remained closed to the United States and its allies for over two weeks now, Iran has continued to send at least 11.7 million barrels of crude oil through to China. This is on top of China’s already significant strategic oil stockpiles, which it built to new heights in the months leading up to the war. The nation boasts a record 851 million barrels of crude oil in onshore commercial inventories – a staggering amount. This stockpile will give China major breathing room to make measured and calculated decisions about its economic and energy strategies going forward while the rest of the world scrambles to keep the lights on at any cost.
But China’s secret to energy security in the face of global energy crisis comes down to far more than its massive crude oil supplies. The country’s true advantage will come from its ‘supergrid’ and its yearslong push to wean itself off of fossil fuel imports and buildout of renewable energies to become the world’s first electro-state.
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A huge part of China’s energy spending has been directed toward building out and fortifying its power grid for greater resilience. “China’s infrastructure build out is far more efficient than that of most countries, and the power grid is no exception,” Penny Chen, a senior director with Fitch Ratings, recently told Fortune. And as AI and manufacturing continue to ramp up strain on global power grids, this will give China an even greater leg up in the competition for global tech and energy production – a race that it’s already winning handily.
“In some ways, the grid investments highlight how energy security — once viewed as a lofty, long-term goal of President Xi Jinping — is now becoming an immediate and crucial source of economic insulation,” reports Fortune.
To be sure, China still faces a massive challenge to energy security and its political positioning with Iran – a major supplier of the crude oil that the Chinese economy still relies on to a considerable, if lessening, extent – if the closure of the Strait of Hormuz continues to drag on, and Donald Trump tries to strongarm Beijing into an alliance to open up the waterway. But if China can wait out the conflict, buffered by its major investments into its diversified grid and backup energy sources, it could very well come out the other side as a stronger force than ever in global geopolitics.
“People out there tweeting that this is destabilizing China may be wishing that were the case, but tweets are not reality,” Josh Freed, head of climate and energy at center-left think tank Third Way, was recently quoted by the Washington Post. “This is a shock China can absorb. It will end up in a stronger position on the other side.”
By Haley Zaremba for Oilprice.com