A Closed Strait of Hormuz Hurts China More Than America
The U.S. can largely supply itself, while China faces an oil shortfall, a limited reserve, and pressure to cut a deal.
All-In with Chamath, Jason, Sacks & Friedberg · Iran War, Oil Shock, Off Ramps, AI's Revenue Explosion and PR NightmareA closure of the Strait of Hormuz would squeeze China far harder than the United States. That is the case laid out by investor Brad Gerstner, who argues the Iran war is really about China and an upcoming three day meeting between President Trump and Chinese leader Xi Jinping.
Fellow investor Chamath Palihapitiya puts American production and use at about 20 million barrels a day each. Since domestic wells can cover most of what Americans burn, he calls a Gulf cutoff "a modest problem for the United States."
Gerstner puts about 20 percent of Chinese oil use as coming from Iran and Venezuela. He argues that oil accounts for all of the country's transport and manufacturing feedstock, from cars and buses to planes.
A strategic petroleum reserve is a government stockpile saved for a crisis. Gerstner says China holds such a reserve but argues it could not sustain the country through five or six months of a closure.
Gerstner puts unemployment among young men in China at about 25 percent now. He speculates that five or six months without normal oil flows would push that rate even higher.
Palihapitiya says Washington should declare victory after degrading and destroying Iran's capability, then step back. If Iran kept hitting cargo ships after that declaration, he argues, China, India, Israel, and the Gulf states would have reason to pressure Iran or act themselves because they need the waterway.
Gerstner points to what China has not done as evidence that Beijing feels the pressure. China has not sent forces to defend Iran and has not canceled the planned summit. Gerstner argues Xi needs the meeting, and an off ramp that gets oil moving again.
Questions people ask
What is the Strait of Hormuz, and why does it matter for oil?
It is a narrow waterway between Iran and Oman that connects the Persian Gulf to the open ocean. About one fifth of the world's petroleum liquids pass through it, mostly from Saudi Arabia, Iraq, Kuwait, the United Arab Emirates, and Iran, so any closure quickly raises prices in Asia and Europe.
If America produces as much oil as it uses, why do U.S. gas prices still rise?
Oil is priced in one global market, so a shortage in the Gulf lifts the price everywhere. American producers can sell abroad for the higher price, which means American drivers still pay more even when domestic wells cover domestic use.
What is a strategic petroleum reserve?
It is oil stored in tanks or underground caverns by governments for emergencies. The U.S. version holds several hundred million barrels and can be released to add supply, while China has built its own reserve that is less transparent but is generally thought to cover a few months of imports.