China has announced a reduction in its intended fuel price hikes in a bid to ease the financial burden on drivers, following an energy price spike driven by rising tensions related to Iran.
Since the escalation of conflict, domestic petrol prices have surged by approximately 20%, primarily attributable to Iran effectively closing one of the world’s busiest oil transport routes, the Strait of Hormuz.
Initially, the government had planned to increase gasoline and diesel prices to 2,205 yuan (£239; $320) and 2,120 yuan per tonne, respectively. However, after intervention from authorities, these increases have been cut nearly in half to 1,160 yuan and 1,115 yuan, effective from Tuesday.
China has over 300 million drivers relying on petrol and diesel-powered vehicles, with a significant portion of its crude oil imports sourced from Gulf nations.
This past weekend, numerous petrol stations across major cities experienced long lines of vehicles, while some outlets posted signs indicating a fuel shortage. Despite this adjustment, it still marks the fifth and steepest fuel price increase within the year.
Global oil markets are currently experiencing volatility, with Brent crude prices having exceeded $100 per barrel on Tuesday, a day after reporting a significant drop amid mixed signals regarding potential US-Iran negotiations.
Analysts highlight that Beijing has built substantial strategic oil reserves by capitalizing on lower global prices and ample supply from Gulf producers over the years. According to Ole Hansen, head of commodity strategy at Saxo Bank, China has amassed one of the largest oil stockpiles globally.
Data from China’s customs administration indicated that crude purchases rose by 16% in January and February compared to the same timeframe the previous year. Iran, facing US sanctions on its oil exports, remains a significant source of discounted oil supply, with estimates suggesting that China purchases over 80% of Iran's exports.
Estimates from Hansen indicate that China’s reserves amount to about 900 million barrels, which could sustain nearly three months of imports. Reports affiliated with Columbia University cite petrol reserves at approximately 1.4 billion barrels.
Even with these reserves, authorities are taking a cautious approach to manage immediate supply challenges. Reports suggest that Beijing has instructed refineries to halt fuel exports temporarily to stabilize domestic prices, though officials have not provided comment on this claim.
According to the US Energy Information Administration, crude imports from Saudi Arabia and Iran each represent over 10% of China’s total imports.
China’s state planner issued a statement on Monday indicating that measures have been implemented to mitigate the impacts of unexpected hikes in international oil prices through temporary regulatory strategies aimed at alleviating burdens on users and ensuring stable economic activity.
The National Development and Reform Commission, which oversees fuel price adjustments, revisits petrol and diesel rates every ten days, aligning them with global crude oil trends.
In response to escalating energy costs, governments across Asia are instituting emergency measures. In the Philippines, civil servants have been instructed to adopt a four-day workweek, while Sri Lanka has declared Wednesdays as public holidays to conserve fuel supplies. Thai and Vietnamese authorities are promoting remote work arrangements.
Thai officials have also postponed international travel, urged workers to opt for short-sleeve attire, and recommended using stairs over elevators to reduce electricity usage.
Sri Lanka’s private bus services faced significant disruptions on Monday due to strike actions initiated by operators seeking fare adjustments in light of increased fuel prices. In the Philippines, more than twenty transport groups are poised for a two-day strike from March 26 to 27.
Japan and South Korea have been particularly vulnerable to supply disturbances related to the Strait of Hormuz, with Japan’s average retail petrol price reaching an unprecedented high last week, climbing to 191 yen (£0.90; $1.20) per litre, marking an 18% rise in one week, as reported by the country’s economy ministry.
On Tuesday, South Korean President Lee Jae Myung announced measures for public institutions to reduce passenger vehicle usage, and his office confirmed the cancellation of his participation in an international forum in China, aiming to lead a swift economic response during this critical period.
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