Strategic reserves insulate China from crude, fertilizer impacts of Iran conflict

China will feel the economic burn of conflict in Iran, but massive state reserves of key commodities will blunt the worst effects.

A quick recap: On February 28, the US and Israel launched a sustained campaign of military strikes on Iran, triggering Iranian retaliatory strikes on targets across Israel and the Gulf.

• On March 2, a senior Iranian military official declared the Strait of Hormuz “closed,” threatening to set transiting ships ablaze (Reuters 1).

We know Beijing is peeved, but what are the practical impacts for China’s economy?

The most immediate risk is to oil supply and prices.

• China buys over 10% of its seaborne crude from Iran, and some 20% of global oil flows transit the Strait of Hormuz, creating the potential for significant disruption.

But Beijing has powerful buffers in place, including:

• Massive strategic crude reserves – likely totaling around four months of imports – that can be released in the event of any significant shortage.
• State-managed retail fuel prices – featuring a price ceiling that limits extreme volatility and protects consumers.

Our take: China is well insulated from short-term oil supply disruptions.

• A prolonged conflict would raise fiscal costs and squeeze state-owned firms, but won’t trigger economic instability.

But the conflict also threatens fertilizer markets. 

• More than 30% of all global fertilizer inputs pass through the Strait of Hormuz.
• Roughly 40% of China's sulphur imports are sourced from the Gulf (Argus).

Get this: Domestic fertilizer industry associations urged members to “adhere to fair pricing” and “maximize production” on March 2, warning against price spikes or broken contracts (CPCFIA).

Here again, China is comparatively well-insulated: It is largely self-sufficient in major fertilizers and maintains sizable strategic reserves – unlike the US and other major agricultural countries.

• But China is also a major fertilizer exporter – and Beijing routinely throttles exports when domestic demand or prices spike.

Our take: We think fertilizer export restrictions are almost certain to be tightened, given winter wheat is in its key growing period and spring planting is around the corner.

• Such measures may not be announced – instead, SOEs and customs officials may quietly slow or block shipments.

The bottom line: Beijing prepares for crises like these.

• Markets may wobble, but core energy and agricultural inputs are buffered by state reserves, industrial capacity, and the potential for administrative intervention.