BEIJING
China and leading Asian economies are facing risks due to their heavy reliance on energy imports from the Persian Gulf region amid the effective closure of the Strait of Hormuz.
The Strait of Hormuz accounts for around 25% of global oil trade, 20% of liquefied natural gas (LNG), and 30% of fertilizer trade—around 45% of the oil and 30% of the LNG that China imports is sourced from the Persian Gulf and the Strait of Hormuz.
China, as the largest buyer of Middle Eastern oil, is estimated to buy 80% of Iran’s oil exports.
Major Asian industrial countries like India, South Korea, and Japan are just as dependent on Middle Eastern energy flows as China.
With tanker traffic paralyzed in the vital waterway following the war triggered by the joint military strikes by the US and Israel on Iran and Tehran’s subsequent retaliations, the global oil supply is facing disruptions, and oil prices are surging.
The rise in oil prices affects transportation and shipping costs, whereas price increases in secondary industrial products such as fertilizers affect food prices, driving up global inflation. The regional turmoil is expected to have a negative impact on global economic growth.
Iran has restricted traffic through the Strait of Hormuz, the 95-kilometer (59-mile) wide waterway that connects the Persian Gulf and the Gulf of Oman, providing a strategic passage in a region with the world's largest fuel reserves.
Some 138 vessels transited through the vital waterway per day before the attacks of Feb. 28, while this figure decreased since then, eventually coming to a standstill, according to the UK Maritime Trade Organization.
Iran slowed the energy flow by closing the route while attacking regional targets in the Gulf to render the war costly for the entire region.
Tehran and the Revolutionary Guards Corps (IRGC) said on March 1 that they would block the Strait of Hormuz, and later Tehran announced the strait would be open to all ships except for those linked to the countries attacking Iran.
A total of 149 vessels transited through the Strait of Hormuz on March 1–24, down 95% versus pre-war levels, according to the logistics firm Kpler.
Asia’s major economies are facing serious issues amid disruptions in shipping traffic, with China and India sourcing around half of their imported oil and natural gas from the Gulf.
South Korea meets 70% of its oil needs from the Persian Gulf, while Japan sources 90% of its oil needs from the region.
Most countries in the Association of Southeast Asian Nations (ASEAN) are also dependent on the region for their energy imports.
Asian countries facing energy supply risks could threaten global economic growth.
Asia’s emerging economies posted 4.5–5% growth last year, versus the global growth of 3.3%, according to International Monetary Fund (IMF) projections.
Rising energy prices in the world’s largest exporting nations, like China, Japan, South Korea, and India, could mean rising production and transport costs, potentially higher prices for exported goods across the globe.
Four out of the 11 countries from which China imports the most oil are in the Persian Gulf region, according to the country’s General Administration of Customs.
China sources 45% of its oil from the Gulf, specifically Saudi Arabia, Iraq, the United Arab Emirates, and Kuwait, while importing LNG from the UAE and Qatar, making up 30% of the country’s total imports.
China is estimated to buy 80% of its oil exported by Iran, although this is not reflected in official figures.
Beijing avoids purchasing sanctioned oil directly, so the majority of oil from Iran is transferred from Iranian vessels to Malaysian vessels off the coast of Malaysia, where it is then exported to China.
The exported oil is then typically processed at small and independent refineries in the northern Chinese province of Shandong, operating outside the state-owned oil companies, and released to the market.
China buys Iranian oil below market prices, mostly via special deals known as petroyuan agreements. China sells goods to Iran in exchange for the oil’s value in Chinese yuan, and although Tehran occasionally complains about the disadvantages of this type of trade, it still makes up a large source of support for the country under sanctions.
This special trade relationship between the two countries led to the claims that Chinese vessels were allegedly granted preferential treatment and passage via the strait amid the tanker traffic standstill, but international shipping records show quite a different story.
On March 11, the Run Chen 2 bulk carrier became the first Chinese ship to transit the Strait of Hormuz, and three more bulk carriers followed suit on the same day.
Following these reports, half of the foreign ships in the Strait of Hormuz emitted Chinese-origin signals via their automatic identification systems to seek passage, but a missile fragment struck a Chinese-owned but European-operated vessel on March 12, heightening security concerns.
On March 13, Tehran said it would establish a safe corridor in the Strait of Hormuz to ensure safe passage for friendly countries' ship movements. According to this plan, ship movements will be monitored in the corridor between the Larak and Kish islands in Iranian territorial waters.
Chinese vessels were reluctant to transit through the corridor over the following 10 days, however.
On March 16, a very large crude carrier from Chinese shipper Cosco's fleet avoided entering the Persian Gulf and instead transited through the Bab el-Mandeb Strait, which is 1,000 kilometers (621 miles) away, into the Red Sea and docked in Yanbu, Saudi Arabia.
Chinese shipowners told the media that there were uncertainties between Iranian trade officials and the IRGC during inspections in the safe corridor between Larak and Kish islands, claiming that vessels choosing the reportedly safer route were asked to pay fees for passage or to carry cargo on behalf of Iran.
A Chinese vessel transited through the corridor between Larak and Kish islands for the first time on March 23, after a 10-day wait.
A Panama-flagged container ship owned by a Chinese firm also passed.
Later that afternoon on March 23, a 45,000-ton Chinese oil tanker transited alongside two Indian flagged LPG tankers, marking the first Chinese oil tanker to pass through the strait since attacks began on Feb. 28.
Iranian Foreign Minister Abbas Araghchi phoned his Chinese counterpart Wang Yi on the same day to tell him that the Strait of Hormuz remains open to vessels from countries not involved in the conflict.
Dialogue and negotiations are reportedly underway to ensure the continuation of energy flow remains uninterrupted through the Strait of Hormuz despite disruptions.
However, the shortfall in energy supply in the aftermath of these devastating disruptions, sending shockwaves through the global energy market, is not expected to be resolved in the short term.
*Writing by Emir Yildirim in Istanbul