The U.S.-Iran war has effectively closed the Strait of Hormuz, disrupting half of China's oil imports and nearly a third of its LNG supply. Beijing's response? Buy more Russian crude and accelerate talks on a massive gas pipeline. But also: buy more electric cars.
Nearly 30% of vehicles sold worldwide this year will be electric, with global EV sales expected to reach 23 million, the International Energy Agency said. That figure represents a sharp acceleration from last year's 25% share, the IEA reported. The timing is no accident. The growth in EV sales comes as the war in Iran has disrupted and raised energy prices, with gas prices in the United States soaring nearly 50% since the war started in late February. When oil hits $100 per barrel and stays there, consumers start doing the math differently.
Can Russia Turn Crisis Into Leverage?
Russian President Vladimir Putin arrived in Beijing on Wednesday to meet Chinese leader Xi Jinping, with the long-stalled Power of Siberia 2 natural gas pipeline on the agenda, according to Kremlin foreign policy aide Yuri Ushakov, who said the project "will be discussed in great detail between the leaders."
The planned 2,600-kilometer pipeline would carry 50 billion cubic meters of gas annually from Russia's Yamal fields to China via Mongolia.
Moscow is betting that the Iran war gives it newfound negotiating power. Russia hopes the turmoil in energy markets from the Middle East conflict will make China more flexible in negotiations on a contract for gas prices for the planned Power of Siberia 2 pipeline project, according to people close to the government. The logic is straightforward: with Hormuz effectively closed and Qatar's LNG capacity damaged by Iranian strikes, China needs alternatives.
But Beijing is playing the long game. China reportedly wanted pricing terms for the new pipeline to match Russia's domestic rate of around $120-130 per 1,000 cubic meters, while Moscow is seeking terms closer to Power of Siberia 1, which analysts estimate would more than double that figure.
Chinese officials expressed an interest in accelerating the talks, though there has been no firm progress so far, one Russian official said.
The pricing dispute reveals the asymmetry. Russia's gas exports to Europe have collapsed since its 2022 invasion of Ukraine, with state-owned energy giant Gazprom seeing shipments reportedly plunge 44% last year to their lowest level in decades. Moscow needs China more than China needs Moscow. Power of Siberia 2, given its scale, could leave Moscow dangerously exposed to a single customer, while Beijing would be trading Hormuz maritime vulnerability for dependence on Russian-controlled energy, said Michael Feller, chief strategist at Geopolitical Strategy.
Why Aren't U.S. Drillers Riding to the Rescue?
President Donald Trump said Tuesday that the war is going to end very quickly, claiming that oil prices would decline sharply, saying "There's so much oil out there, they're going to come plummeting down." The market isn't buying it. The U.S. benchmark for oil was $105 per barrel on May 4—an 85% increase since the beginning of the year.
Yet American shale producers remain cautious. In a survey of oil and gas executives conducted by the Dallas Fed, which covers the prolific Permian Basin, 30% predicted no change in U.S. oil production this year, 43% saw an uptick ranging from 1 to 250,000 barrels per day, and 17% put it at 250,000-500,000.
"Even after nearly a month of oil above $90 per barrel, rig counts declined, signaling little confidence that prices will hold," one respondent said.
Midland, Texas-based Diamondback Energy—the third-largest Permian player after Exxon Mobil and Chevron—said it is adding both fracking crews and drilling rigs to West Texas. But Diamondback is the exception. "U.S. shale producers are not poised to quickly ramp up production for two major reasons — strategic caution and a lack of drilled, uncompleted wells to quickly bring online," Rystad Energy analyst Matthew Bernstein wrote in a report, noting that domestic oil players are unlikely to increase production so long as the duration of the Iran conflict remains hard to predict.
The industry learned its lesson from previous boom-bust cycles. The shale sector has been wedded to a policy of capital discipline for so long now that it would require a sea change in boardroom strategy to reverse course, suggesting any cash windfall from the oil price rise will be funnelled to shareholders through higher dividends and share buy-backs rather than into fresh drilling campaigns.
