China’s Great Wall of Fossil Fuels

One of the most remarkable things about the latest conflict in the Mideast—which now seems to be ebbing, albeit fitfully, through diplomacy—is the relatively muted impact on crude oil and natural gas prices, which is surprising given that the war with Iran has resulted in the long-dreaded worst-case scenario for the global energy markets with the closing of the Strait of Hormuz.

The Iran War has not raised oil or natural gas as much as it could have – and China deserves credit

Even though roughly 20% of the world’s crude oil volumes and liquefied natural gas (LNG) cargoes have been bottlenecked for nearly four months, global oil and gas prices have increased less than expected—much less so than with the outbreak of the Russia-Ukraine war in 2022—and have normalized quickly as peace negotiations have gained traction.

Give credit where credit is due: China’s fossil fuel-centric energy policies are the main reason. While climate advocates like to extol Beijing’s heavy investment in wind and solar power, electric vehicles (EVs), and other clean energy technologies, this is largely a green veneer for the country’s hydrocarbon-powered economy. In 2025, approximately 78% of the Middle Kingdom’s primary energy demand was met by fossil fuels.

China’s aggregate consumption of coal, crude oil, and natural gas has jumped nearly sixfold since 1985—including a 27% increase over the past decade—and shows no sign of peaking at this point. To keep pace with projected demand, since 2015, the country has continued to increase its domestic hydrocarbon production and supporting infrastructure.

Where China gets its oil and gas

While largely self-sufficient in coal—China remains the world’s largest producer by far, mining more coal than the rest of the world combined in 2025—it also ranks as the world’s largest importer of oil and gas (much of it sourced from the Middle East) to satisfy its domestic needs.

To mitigate its exposure to global energy market disruptions, China has continued to expand its inventory and processing capacities for both oil and gas—the logic of which has been clearly demonstrated by recent events in the Persian Gulf.

China’s crude oil storage capacity currently stands at an estimated 1.4 billion barrels, most of which was filled heading into 2026. Its downstream refining capacity totaled 18.5 million barrels per day in 2025, equal to that of the U.S. despite having an economy roughly one-third smaller. China has also assembled one of the world’s largest networks of LNG regasification terminals largely from scratch over the past decade.

It is because of this extensive fossil fuel infrastructure that China has been able to weather the current Iranian conflict by throttling back its oil and gas imports from the region while drawing down on its existing system inventories. Since the start of the war with Tehran in February, commodity analyst Kpler estimates that Chinese import demand for crude oil and LNG has dropped by 45% and 58%, respectively, providing a pressure relief valve for global energy prices.

Coal is their backup for renewable energy

China’s natural endowment of coal reserves also provides the country with additional oil and gas flexibility. Despite the recent ramp-up in renewables, coal serves as the generation backbone for China’s power grid, which helps to free up more natural gas for the industrial and consumer sectors (mainly for heating and cooking). Moreover, China is rapidly becoming an industry leader in converting coal (using the century-old Fischer-Tropsch technology) into natural gas liquids, petrochemical feedstocks, and synthetic transportation fuels.

For all the hype about Chinese EVs, the country’s transport sector (including its outsized standing military) continues to run on oil and refined products. An increasing number of EVs on Chinese roads has had no discernible effect on national gasoline demand, away from the glaring irony that these so-called green vehicles primarily run on electricity generated by coal-fired plants.

No energy transition is occurring in China. Quite the opposite. China remains the world’s largest consumer of coal, crude oil and natural gas and has effectively built a fossil fuel fortress—a modern-day version of the Great Wall—to protect its economy and insulate its growth and development and competitive position from geopolitical risk and commodity price volatility. The benefits of China’s all-of-the-above hydrocarbon-focused strategy—with its built-in resiliency and inherent ability to fuel switch and toggle between internal and external energy sources—will also accrue to the global economy since it serves as a price buffer for worldwide supply and demand.

Other countries should do the same

Instead of focusing on China’s shiny clean energy activities—which, while impressive in scale, remain largely additive rather than transformative—the developed world, particularly Europe, should take a page out of China’s energy security playbook and fortify its fossil fuel supply chains rather than using the Iran war as yet another excuse to double down on ill-conceived decarbonization policies.

This article was originally published by RealClearEnergy and made available via RealClearWire.