Who Holds the Power in Energy Now?

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The Iran war has already begun to reshape global energy markets. As I argued recently, the prolonged disruption to flows through the Strait of Hormuz is accelerating changes in energy use and trade that will not simply reverse when shipping returns to normal. But the emerging order is about more than substitution away from Middle Eastern oil and gas. The crisis is also changing who holds power in energy markets — and calling into question assumptions that have underpinned energy security for decades.Two developments deserve particular attention. First, the US’ difficulty in keeping the Strait of Hormuz open has weakened the perceived reliability of the security umbrella that supported Mideast Gulf energy exports. Second, China is increasingly able to use its position as the world’s largest crude importer, its inventories and its clean-energy manufacturing base to influence both oil prices and the pace of substitution away from fossil fuels.The historical parallel is important. After the 1973 Arab oil embargo, consuming countries responded to higher prices and insecurity by conserving oil, developing alternative supplies and changing the fuels they used. Mideast Gulf crude exports, after rising to around 20 million barrels per day by 1979, subsequently fell below 10 million b/d. Producers eventually recovered as non-OECD consumption surged, particularly in China. The question now is whether the current shock begins another period in which importing countries reorganize their energy systems around security as much as price — but this time with mature renewable technologies and a dominant cleantech manufacturer available as alternatives.The Gulf Security GuaranteeThe US’ failure to defend Mideast Gulf nations and keep the Strait of Hormuz open has permanently changed the economic reliability of energy supplies from those countries. For decades, the assumption that Washington could ultimately secure the Gulf helped underpin the region’s role at the center of world energy trade.The US has taken a special interest in protecting the Gulf for almost 75 years, beginning with the Eisenhower Doctrine that followed the 1956 Suez Canal crisis. After the 1979 Iranian revolution, President Jimmy Carter expanded on Eisenhower’s promise with the “Carter Doctrine.” In his 1980 State of the Union address, Carter said an attempt by an outside force to gain control of the Persian Gulf would be regarded as an assault on vital US interests and “repelled by any means necessary, including military force.”That commitment became embedded in the region’s security architecture. Gabriel Collins and Jim Krane explained in a Baker Institute publication that the 1990 Gulf War led to greater US activity in the region, with US forces gaining access to military bases in all six Gulf Cooperation Council countries between 1991 and 1994. The US presence subsequently expanded further.Yet, when the Iran conflict began, despite formidable US military forces on land and at sea, the US could not maintain normal navigation through Hormuz. Iran’s asymmetric attacks sharply reduced traffic through the strait and exposed the vulnerability of installations and shipping routes close to Iran.The consequence is economic as well as strategic. The US’ inability to protect the Mideast Gulf has eroded buyer confidence in the reliability of oil and LNG shipments from Gulf nations. Nations that depend on energy and fertilizer shipments from Gulf suppliers now have to add a risk premium for those shipments as well as consider buying from alternative suppliers or shifting away from fossil fuels.That does not make Mideast Gulf energy unimportant. But it changes the calculation for buyers. Security of supply can no longer be treated simply as a function of reserves, production capacity and shipping distance; the possibility of prolonged physical interruption now has to be priced more explicitly into investment and procurement decisions.China as the Swing BuyerAt the same time, the move off oil may be accelerated by China’s emergence as the buffer-stock manager for crude. The Economist recently argued that China had “wrested control of oil markets from Opec” by cutting crude imports, reducing gasoline and diesel demand and tapping strategic stocks to offset war-induced supply losses.China appears to have been exerting this influence for longer than the Iran conflict itself. It added substantial volumes to strategic stocks when prices threatened to decline during 2025, before drawing on those inventories and cutting purchases in 2026. While inventory coverage elsewhere reverted toward pre-pandemic levels, China continued building stocks relative to consumption.Following an Asian industry meeting in 2025, Bloomberg reported that Chinese commercial and strategic stocks had increased by 130 million barrels from the end of March to the beginning of September. After the Iran war began, China reduced crude imports and domestic gasoline and diesel consumption while drawing from strategic stocks. In doing so, it helped smooth prices during a severe supply disruption.Looking closely at these actions, China seems to be acting as a buffer-stock manager in world crude markets. That gives Beijing a role that in some respects is the mirror image of Opec’s traditional position. Opec has sought to manage supply as a producer; China can increasingly influence the market through the timing and scale of its purchases and stock movements.One goal appears to be minimizing the threat of ultrahigh prices for nations that rely on China for manufactured goods, capital investment and services so as to prevent energy-caused recessions. This also aligns with China’s own economic interest in expanding the sales of electric vehicles (EVs), solar panels, batteries and other Chinese-made clean-energy equipment against fossil-fuel alternatives.The Iran war has reinforced that connection. Chinese exports of solar panels, wind equipment and EVs have risen sharply, while Belt and Road green-energy spending accelerated in the first half of 2026. For countries exposed to imported fossil-fuel disruption, the attraction is not only lower operating costs but a different kind of energy security: Once a solar panel, battery or EV has been purchased, its operation does not depend on a continuous imported fuel flow.There are obvious limits to this argument. Greater dependence on Chinese technology creates its own supply-chain and geopolitical risks. But the distinction between a fuel that must continually cross a vulnerable shipping route and capital equipment that can continue operating after installation matters. The Iran shock has made that difference harder for importing countries to ignore.A Different Balance of PowerTaken together, these developments suggest that the new energy order will not simply be defined by lower demand for Middle Eastern oil and LNG. It could also involve a redistribution of market power: away from Gulf producers whose exports depend on vulnerable routes and toward major consuming countries — above all China — that can influence prices, inventories and the technologies used to replace fossil fuels.Mideast Gulf producers recovered from their post-1970s marginalization because rapidly growing non-OECD demand, led by China, restored the need for their barrels. China has accounted for roughly half the rise in non-OECD, non-Mideast Gulf oil consumption since the 1960s, with India a distant second. If Chinese demand now becomes a tool for managing prices and accelerating substitution rather than simply a source of ever-rising consumption, the implications for producers are profound.This is a more consequential shift than a temporary rerouting of cargoes. If buyers respond by diversifying suppliers, holding more inventories and investing more heavily in technologies that reduce fuel imports, some of the demand lost during the crisis may never return.The result need not be an immediate collapse in Gulf exports. But buyers have been given two lessons at once: Middle Eastern supplies can be interrupted for longer than many assumed, and the world’s largest oil importer has more capacity to shape the response than it once did. Those lessons may endure long after the Strait of Hormuz fully reopens.Philip Verleger is an economist who has written about energy markets for over 40 years. A graduate of MIT, he has served two presidents, taught at Yale and helped develop energy commodity markets since 1980. Kim Pederson is the editorial director of PKVerleger. The views expressed in this article are those of the author.