Why India's oil shock from Strait of Hormuz closure has been blunted by China's low imports

The ongoing West Asia conflict and the resulting near-closure of the Strait of Hormuz have squeezed global crude oil supplies and pushed prices into the $100-$120 per barrel range. For Asian economies, including India, the impact could have been a lot worse. The main reason it has not been catastrophic so far is that China — the world's largest crude oil importer — has cut its imports sharply, freeing up barrels for other Asian buyers like India, South Korea, Japan, Thailand and Singapore.

The Strait of Hormuz, a narrow stretch of water between Iran and Oman, normally carries about a fifth of the world's crude oil. The vast majority of that oil goes to Asia. After the US and Israel launched strikes against Iran on February 28 this year, Tehran has effectively halted vessel movement through the strait, leaving only a trickle of supply. Before the war, between 40 and 50 per cent of India's oil imports passed through the Strait of Hormuz. India is the world's third-largest crude oil consumer and imports more than 88 per cent of what it uses.

According to commodity analytics firm Kpler, China's crude oil imports in May are tracking around 6.6 million barrels per day (mbd) — the lowest level since 2016. Compared with the previous year's average, Chinese imports from Russia, Africa and the Americas have fallen sharply. Chinese refineries are running at about 13.5 mbd, down by nearly 1.92 mbd compared with the 2025 average. Beijing has been able to do this because of its massive onshore oil inventory and its strategic petroleum reserve. High retail fuel prices, weak economic activity and a faster move towards electric vehicles have also reduced China's domestic oil demand.

This Chinese restraint has been a quiet lifeline for India. India's May crude imports are estimated at around 5 mbd — possibly its highest ever for the month of May — supported mainly by stronger flows from Russia and Venezuela, which do not go through Hormuz. Refiners in South Korea, Japan and Southeast Asia have similarly secured better-than-expected supplies. Kpler's senior crude oil analyst Muyu Xu has said that, beyond strategic reserve releases by countries like the US, the absence of Chinese buying is the single biggest reason oil prices have stayed below $150 per barrel despite a structural supply loss of about 8 mbd from West Asia.

The pain for India is still very real. The country imports about 1.8-2 billion barrels of crude per year. Every $1-per-barrel increase in the price of oil adds up to $2 billion a year to India's import bill. According to a Nomura report, India is among the three Asian economies most vulnerable to high oil prices, alongside Thailand and South Korea. Every 10 per cent rise in oil prices widens India's current account deficit by about 0.4 per cent of GDP. Commerce Ministry data shows crude oil imports in 2025-26 stood at about $135 billion. If oil sustains at $100 a barrel and import volumes do not fall, the 2026-27 oil bill could cross $200 billion.

The situation could change quickly. If China decides to resume normal imports — for example, because its inventories run down or domestic demand rises in the summer — there will be a sudden tightening of Asian supply, and prices could spike further. Chinese state-owned refiners are reportedly planning to keep June and July run rates flat. Independent Chinese refiners have also cut spot purchases due to high prices for Russian and Iranian oil, which earlier formed a big part of their import mix.

US President Donald Trump has said he is close to a "final determination" on extending the ceasefire with Iran and reopening the Strait of Hormuz. Iran says no agreement has been finalised. Until the strait reopens fully, India's energy security will depend heavily on Russian and Venezuelan crude flows, the strategic petroleum reserve at sites like Vishakhapatnam, Mangaluru and Padur, and continued Chinese restraint.

For exam preparation, this story usefully connects geopolitics, global oil markets, India's current account deficit, and the role of strategic petroleum reserves in energy security.