Iran war: How has China's energy transition been impacted?

The war in Iran has become one of the most significant shocks to the global energy system in years.

The closure of the Strait of Hormuz, a critical artery for global oil trade, has disrupted energy supplies, driven sharp price swings and heightened concerns about energy security around the world.

The impact has been felt most acutely in Asia, where many economies remain heavily dependent on energy imports from the Middle East. China, however, has weathered the shock relatively well thanks to years of energy diversification, strategic planning and structural changes to its energy system.

Last month, at a World Economic Forum event in Dalian, China, I spoke with Dr Erica Downs, Senior Research Scholar at the Center on Global Energy Policy at Columbia University and a former energy analyst at the US Central Intelligence Agency, about China's long-term energy ambitions and how the conflict in the Middle East is reshaping the country's energy transition.

Here’s what she had to say.

“The term “energy powerhouse” caught my attention when it appeared in China’s 15th Five-Year Plan for the period 2026-2030. It's not a new term; it was something that had been discussed in China years before. But the fact that it was included in a five-year plan for the first time was noteworthy.

“What I've been able to put together based on analyses and commentaries by Chinese analysts, officials and media commentators is that it basically means building an increasingly self-sufficient and resilient energy system in which China has control over all of the core energy technologies that it needs. China basically wants to make sure it continues to be in a good position to weather any external energy shocks, like the one we just saw with the multi-month disruption of energy flows through the Strait of Hormuz.

“It also reflects the fact that analysts in China see the nature of global energy security changing. Specifically, they see it shifting from one in which control of physical, natural resources is a source of energy security to one in which controlling key technologies is a source of energy security.”

“The war has reinforced those objectives. It's worth noting that China has weathered this energy crisis so far very well, especially compared to other countries in Asia that have been facing the same high prices and physical shortages. And as a result, China has struck me as being very calm in the face of this crisis.

“I think this has to do with the fact that the disruption of energy flows through the Strait of Hormuz and their ability to weather it basically validated everything they've done on the energy security front for over 20 years. This includes building cross-border oil and natural gas pipelines, expanding large oil stockpiles, diversifying the domestic energy mix, and electrifying everything including transportation, which has allowed China to avoid oil demand growth.

“Looking forward, the crisis is only reconfirming for China that the path that they have been on is the correct one.”

“The way Chinese officials have responded to this situation is to say that China isn't going to get rid of its old way of making a living before a new one is fully in place. They've been very explicit about wanting to make an orderly transition away from fossil fuels.

“So there's an expectation that China will continue to rely on fossil fuels as they work on doing what they need to do to eventually reach a point where China can rely on renewable or non-fossil energy around the clock. So even though China has added large volumes of renewable power generation capacity, they do need to transform their power system to do things like build more renewable energy storage.”

“There's been a shift in the type of investments that China has been making along the Belt and Road since this initiative was unveiled back in 2013. Initially, there were a number of very large, big-ticket infrastructure projects that drew headlines. This included things like ports and railways as well as large and expensive coal power plants.

“The shift away from that has to do with China's own carbon peaking and neutrality goals, which were announced in 2020. And then Chinese leader Xi Jinping's announcement in 2021 that China would not be building any new coal power plants abroad. Since then, we've certainly seen a shift towards deploying or exporting more clean energy technologies abroad and building more clean-energy assets overseas.

“Another change we are seeing is that more Chinese companies are building manufacturing facilities overseas. I've noticed this especially with respect to solar and to a lesser extent with energy storage and wind turbines. Some of that has to do with circumventing US tariffs and some of it has to do with wanting to be closer to customers.”

“China is committed to continuing to expand the role of non-fossil energy. I don't think that's purely because of concerns about climate change, although those are absolutely there and China does recognize that climate change is real and recognizes that, if left unchecked, it’ll have adverse consequences on China.

“But there's also an energy security dimension to this. China wants to be as self-sufficient in energy as possible, and non-fossil energy allows them to do that in a way that oil and gas didn't.”