China’s Crude Cut Is Why Oil Never Hit $200 in Iran War

China has slashed crude oil imports and drawn on its 1.4 billion barrel strategic reserve to keep oil from hitting the $200 a barrel that analysts forecast when the Iran war began. JPMorgan and Societe Generale analysts argued this week that the cushion is temporary, and that the bill for those reserves will arrive in the form of higher prices.

Oil prices hovered around $94 a barrel on Wednesday, still below the $104 a month ago, after President Donald Trump said Iran will “pay the price” for its laggard progress in brokering a peace deal. The effective closure of the Strait of Hormuz, through which about 20% of the world’s oil supply passes, has created the largest energy disruption on record, and JPMorgan analysts wrote this week that “prices have become remarkably calm” as the conflict enters its fourth month.

The $200 Forecast That Never Landed

In the early days of the Iran war, analysts held the grim prediction that crude oil prices would top $200 a barrel, nearly triple pre-war prices, per the report that mapped the $200 forecast. More than three months into the conflict, that forecast has not come close to materializing. China’s pullback from crude imports is the reason traders and banks keep missing.

JPMorgan analysts wrote this week that “as the conflict enters its fourth month, one development stands out: prices have become remarkably calm.” The war, now in its 100th day, has produced the largest energy disruption on record, with global crude supply down 14% since February 28. Yet prices have risen only about 30%, down from the 60% peak reached in late March, according to Societe Generale. The gap between the prediction and the price is almost entirely a story about one buyer.

How China Became the Pressure Valve

China has done something no other major importer has attempted during a war-driven supply shock: it has stopped buying. The country has gone from importing around 11 million barrels a day on average for the last five years to about 7.8 million barrels a day in May, its lowest in nearly a decade, according to customs data.

The cut is one of the two largest sources of relief in the global oil market, second only to Saudi rerouting flows and larger than coordinated SPR releases from the U.S., Europe, and Japan, according to why the $200 spike has failed to materialize. Societe Generale called it the market’s “key rebalancing force” and said the reduction is the reason oil prices never climbed to the doomsday levels that analysts kept forecasting.

• 1.4 billion barrels: China’s strategic petroleum reserve, the largest in the world
• 7.8 million barrels a day: China’s May crude imports, the lowest in nearly a decade
• 11 million barrels a day: China’s 5-year average crude imports
• 74%: share of the global crude import decline that came from China, per JPMorgan

The pullback runs deeper than the stockpile story. China has spent years electrifying its energy and transport systems, and Rory Green of GlobalData TS Lombard said the rapid shift since 2022 has moved China from an energy balance toward a “substantial surplus.” Traders have started to price in the possibility that China will not return to its pre-war import levels.

A Supply Shock Half the Price Reaction of 1973

The Strait of Hormuz disruption is now in its fourth month, with global crude supply down 14% since hostilities began on February 28. That is double the 7% supply loss from the 1973 OPEC oil embargo, the deepest peacetime supply shock on record before this one.

Yet prices have moved far less than the historical comparison would suggest. The current price response is a fraction of the 1973 spike, even as Brent briefly touched $97 on a Monday escalation. The 1973 embargo, by SocGen’s count, sent prices soaring on a smaller supply loss, and the bank separately noted the current price increase has already pulled back from a 60% peak reached in late March.

The gap is not because the war is small. SocGen identified ten offsetting forces behind the muted price reaction in its note, including Chinese demand destruction, structural shifts in energy use, inventory drawdowns, reassuring messaging from Washington, and a deceptively soft forward curve.

Source: Societe Generale.

The market has not absorbed the shock cleanly. SocGen wrote that “physical markets are tightening, with falling inventories and growing prompt supply strain, yet prices remain unusually subdued relative to fundamentals.” The inventory backdrop is quieter than the price action suggests, according to the bank.

China’s Stockpile Bet Is Running Out of Road

The same stockpiles and import cuts that have shielded the market are now the binding constraint. China held 1.4 billion barrels in strategic reserves, the largest stockpile in the world, and its pullback from the seaborne market accounts for 74% of the global decline in crude imports, according to JPMorgan. The cushion works because it can be drawn down. It stops working when it has to be refilled.

The market will require higher prices to restore balance. Several structural pressures are pointing in the same direction: strategic reserves will need to be rebuilt, inventories are unlikely to remain comfortable without incremental supply, and new production requires stronger returns to move forward.

Mike Haigh, head of fixed income, currencies and commodity research at Societe Generale, wrote the line in the bank’s Monday note.

Michal Meidan, head of China energy research at the Oxford Institute for Energy Studies, asked in a recent report how low Chinese imports can go before the country “must tap into its stocks more meaningfully or resume crude buying even at higher costs.” China learned the cost of getting that calculation wrong in late 2021, when a global coal shortage triggered power-plant shutdowns and severe outages after the government capped retail electricity prices. The current strategy assumes Beijing can keep guessing right on how much oil it needs to keep its economy running. JPMorgan and SocGen both flag that assumption in their notes this week.

Three Competing Forecasts for What Comes Next

The major banks have laid out three competing paths for where oil goes from here. JPMorgan’s base case keeps Brent near current levels for the rest of 2026, Fitch sees a sharp drop from September, and SocGen argues the equilibrium price is higher than the current forward curve implies.

JPMorgan’s base case is that a June reopening of the Strait would keep Brent crude near current levels for the rest of 2026. A longer closure would add to prices in the second half as stocks deplete faster. Fitch’s base case is sharper in the other direction: a late July reopening would push Brent to an average well below the current price from September, on the view that the current spike reflects a “temporary logistical supply shock” rather than a lasting loss of production capacity.

• JPMorgan base case: a June Strait reopening keeps Brent at around $100 for the rest of 2026
• JPMorgan, longer closure: adds about $5 in Q3 and $15 in Q4 as stocks deplete
• Fitch base case: a late July reopening pushes Brent to an average of $70 from September
• Societe Generale: the longer-term equilibrium price for oil is “likely higher than what the current forward curve implies”

SocGen sits on the hawkish end of the spread. The bank argues that strategic reserves will need rebuilding, inventories are unlikely to remain comfortable without incremental supply, and new production “requires stronger returns to move forward.” That is the bill for the cushion: when China starts buying again, it will be buying into a tighter market, with the Strait of Hormuz closure as the binding constraint.

Frequently Asked Questions

Why hasn’t oil hit $200 a barrel?

Because China has been absorbing the shock. Its crude imports fell to 7.8 million barrels a day in May, the lowest in nearly a decade, accounting for 74% of the global decline in crude trade. That cut, combined with strategic reserve releases and rerouted Saudi flows, has kept prices around $94 a barrel even as the Strait of Hormuz disruption removed 14% of global supply.

How long can China keep cushioning prices?

Analysts say not indefinitely. China’s 1.4 billion-barrel stockpile will need rebuilding, and Michal Meidan of the Oxford Institute for Energy Studies has asked how low imports can go before China must resume buying at higher costs. Societe Generale’s Mike Haigh wrote that the market will require higher prices to restore balance.

What is the Strait of Hormuz and why does it matter?

It is a narrow shipping lane between Iran and Oman through which roughly one-fifth of the world’s seaborne oil supply passes, according to Societe Generale. Its effective closure since late February has removed more barrels from the market than the 1973 OPEC embargo, the deepest supply shock the oil market has faced in decades.

Will consumers see higher gas prices?

The major banks expect prices to rise from the current $94 range. JPMorgan’s base case keeps Brent around $100 for the rest of 2026 if the Strait reopens in June, with a longer closure adding about $5 in the third quarter and $15 in the fourth. Fitch projects a fall to $70 Brent from September if the Strait reopens in late July.