Beijing’s billion-barrel weapon: Why India must prepare for China-driven oil prices

For decades, the global oil market has been dominated by two powers: the Gulf, led by Saudi Arabia, and the United States, which provided military protection and financial support to the Gulf. However, China has emerged as a third major player, accumulating strategic reserves equivalent to 110-140 days of imports. This gives China the ability to influence oil prices, acting as both a significant buyer and seller.

China holds around 1.4 billion barrels of strategic oil reserves, more than three times the US Strategic Petroleum Reserve. The country's oil imports have also nearly doubled, accounting for around 20% of global crude demand. China's strategic reserves have been used to counter price volatility during crises, such as the Middle East situation, and have positioned the country as a global swing buyer.

Unlike other major importers, China's reserve management is largely opaque and commercially driven, giving it greater flexibility in the global oil market. This position has evolved over the past decade, as China's oil consumption and imports increased significantly. China's strategic reserves help it act as a global swing buyer, putting a structural floor for global prices during price dips and suppressing price spikes during rallies.

China has built its inventory by exploiting divisions in the international system, buying discounted oil from sanctioned countries like Russia, Iran, and Venezuela. This diversified buying strategy reduces the influence of the United States on oil flows and gives China negotiating power over exporters. In the future, China could further influence global energy trade by offering refined products or reserve oil to shortage-hit countries, supporting transactions in yuan, and potentially transitioning to a petroyuan system. This shift could gradually reduce US influence over energy trade.