1 CCP exploits Middle East energy crisis to engage in ‘oil diplomacy’
China exports energy to the Philippines
March 30
Bloomberg News reported that China has been exporting diesel and other fuels to Southeast Asian countries amid a supply crunch caused by war in the Middle East. Per vessel tracking data it compiled, Bloomberg said that Tankers Ding Heng 36 and Auchentoshan delivered over 260,000 barrels of diesel to the Philippines during the March 28-29 weekend. During the same period, Great Ocean delivered about 100,000 barrels of distillate fuels to Vietnam.
The Philippines, which is struggling with a national emergency due to fuel shortages, said on March 29 that it was preparing to receive a first batch of diesel stemming from its oil diplomacy efforts. While officials did not name specific suppliers, the PRC was the main supplier of gasoil to the Philippines in March, accounting for over half of the latter’s 158,000 barrels a day of imports.
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China is a net importer of oil and one of the major Asian economies heavily reliant on energy shipments passing through the Strait of Hormuz. Shipments through the waterway have been disrupted since the outbreak of the U.S.–Iran war at the end of February. Iran is turning back ships from “hostile countries” (linked to the U.S. and Israel), while those heading to and from China and other nations friendly to Iran are allowed to pass through. Iran is also reportedly charging a transit fee of $2 million to vessels using the Strait.
In early March, the CCP authorities issued verbal guidance to refineries to suspend signing new export contracts and negotiate cancellations of existing shipments in response to the Middle East conflict. By March 11, this guidance was escalated into a “hard ban,” fully prohibiting exports of gasoline, diesel, and jet fuel. This decision further drove up energy prices in parts of Southeast Asia, where China is one of the most important fuel exporters.
Asian energy crisis
Iran’s partial blockade of the Strait of Hormuz has led to an energy supply shock. About 20 percent of global oil shipments and around 20 percent of global liquefied natural gas transit through the Strait, and oil prices have surged significantly (over $120 a barrel at one point in early March) since the start of the Middle Eastern conflict. According to shipping data agencies, between 400 and 700 oil tankers were stranded on both sides of the strait by the end of the first week of the war. Meanwhile, war risk insurance premiums have exceeded 0.4 percent of vessel value, increasing the insurance cost of a single transit by roughly $600,000 and pushing up the economic unviability of commercial voyages.
Dozens of countries, particularly those in South Asia and Southeast Asia, are facing energy shortages, fuel rationing, and surging electricity prices. Some notable examples include:
- Philippine president Ferdinand Marcos Jr. declared a year-long national energy emergency on March 24, the first country to do so over the energy crisis. The country has shifted to a four-day work week to conserve electricity, and transport strikes have paralyzed major cities. According to some reports, diesel prices have doubled or more; the Philippines is extremely dependent on crude from the Middle East, with about 98 percent of its supply coming from the region.
- India saw price spikes on panic buying and was forced to draw on strategic reserves. The country derives about 60 percent of its oil and 50 percent of its LNG from the Middle East.
- Pakistan and Bangladesh, which are both highly dependent on LNG from the Middle East (about 99 percent and 72 percent respectively), have resorted to energy rationing, school closures, and remote work.
- Southeast Asian countries like Vietnam, Thailand, Cambodia, Myanmar, and Laos have reported fuel shortages, and have implemented or are planning energy rationing and remote work measures. Countries that export (Malaysia) or refine (Singapore) energy, and/or have deeper reserves, are doing relatively better during the crisis, but are impacted by rising costs related to the energy shortage.
Red Sea, Bab el-Mandeb strait blockade?
On March 28, the Houthis, a Yemen-based militant group backed by Iran, announced that they would continue military operations until the cessation of U.S.-Israeli attacks on Iran and its proxy groups, including Hezbollah in Lebanon. While the Houthis did not explicitly say that they would target shipping in the Red Sea, analysts believe that they would likely do so the longer the U.S.-Iran war drags on.
Facing the Strait of Hormuz partial blockade and potential disruption at the Bab el-Mandeb Strait/Red Sea, major shipping companies like Maersk, Hapag-Lloyd, and MSC have avoided those waterways and are instead rerouting their vessels via the Cape of Good Hope.
Our take
1. The PRC is leveraging its substantial strategic reserves amid a Middle East energy crisis to conduct so-called “oil diplomacy.” Beijing’s strategy appears to revolve around energy control, using the internationalization of the RMB as its pathway and regional restructuring as its objective. By utilizing resource allocation and the “financial empowerment” of critical waterways, the CCP seeks to transform the energy crisis into a strategic opportunity to reshape global financial dominance.
i) China currently possesses the world’s largest refining industry. Its processing capacity and export policies have effectively made it a “swing supplier” in the global energy supply chain. Independent “teapot refineries” in Shandong Province account for roughly one-quarter of national capacity, and serve as a key force in stabilizing domestic fuel supply and enabling flexible exports.
In 2025, China exported $39.4 billion worth of refined oil products, ranking ninth globally. Major destinations included Hong Kong ($7.88 billion), Singapore ($6.7 billion), the Philippines ($2.14 billion), and Australia ($2.06 billion).
Jet fuel is China’s most internationally competitive refined product, with exports rising 10.9 percent in 2025 to 19.55 million tons. China also supplies about one-third of Australia’s jet fuel and roughly half of the refined fuel demand of the Philippines and Bangladesh.
ii) The PRC is able to conduct “oil diplomacy” in part due to its accumulation of a large stockpile before the U.S.-Iran war. Before the onset of the conflict, China had stepped up oil imports by 15.8 percent from a year ago during the January-February 2026 period. By March 2026, China’s total oil reserves (including government and commercial stockpiles) were estimated at 1.2–1.3 billion barrels, enough to support about 75 days of domestic consumption or 120 days of import substitution. This counter-cyclical stockpiling means that as oil prices surged above $110 per barrel, these reserves became a strategic asset for Beijing, enabling it to play the part of a helpful “provider” during a regional energy crisis.
iii) Beijing’s order for domestic refineries to completely suspend exports of gasoline, diesel, and jet fuel shortly after the outbreak of the U.S.–Iran war appeared on the surface to be a measure for its own energy security. One of the outcomes of the move, however, was the creation of ideal conditions for it to engage in “oil diplomacy.”
Following Beijing’s ban, benchmark refining margins in Singapore climbed rapidly. The price of diesel in Asia soared to $150 per barrel, jet fuel touched $163, and gasoline prices rose by approximately 76 percent compared to pre-war levels. Australia, facing a severe shortage of aviation fuel, was forced to seek emergency shipments from the U.S. Gulf Coast, leading to a massive increase in transport costs. Meanwhile, Vietnam’s aviation sector issued warnings that large-scale flight reductions may occur in April due to fuel scarcity.
Beijing’s ban has provided the CCP with the diplomatic leverage of a “selective embargo,” granting the PRC economic coercive power in regional diplomacy beyond military means. Notably, more than 50 percent of the Philippines’ diesel imports in March came from China, a massive dependency. This “targeted drip-feed” assistance model allows Beijing to strengthen its image as a regional “stabilizer” without compromising its own energy security. In contrast, the U.S. comes off worst in the eyes of its Asian allies as the creator of the energy crisis. Going forward, Beijing will likely make moves to guide Asia’s energy supply chains away from globalized structures toward a China-centered regional system, using CIPS (Cross-Border Interbank Payment System) as the settlement foundation.
2. The energy crisis in the Middle East also provides Beijing with an opportunity to accelerate its plans for “peaceful reunification” with Taiwan.
The U.S.–Iran conflict has exposed the severe vulnerabilities in Taiwan’s energy framework. While natural gas now accounts for over 50 percent of Taiwan’s power generation, its safety reserves of LNG last for only 11 days. Due to the damage at Qatar’s Ras Laffan facilities, Taiwan is facing LNG supply disruptions alongside high-priced competition in the spot market. Concurrently, TSMC accounts for approximately 10 percent of Taiwan’s total electricity consumption, and the helium gas required for semiconductor manufacturing — of which Qatar provides 30 percent of global supply — is now at risk of disruption.
Taiwan’s fragile energy structure provides Beijing with the opportunity to conduct cognitive warfare and informational pressure operations. On March 18, PRC Taiwan Affairs Office spokesperson Chen Binhua told reporters that “peaceful reunification” would allow the “strong motherland” to better protect Taiwan’s energy and resource security. Chen added, “We are willing to provide Taiwan compatriots with stable and reliable energy and resource security, so that they may live better lives.”
3. The current “success” of Beijing’s “oil diplomacy,” however, hinges on a temporary “wartime premium.” If the Middle East conflict concludes in a few short weeks, the PRC will lose its diplomatic leverage with the gradual resumption of energy flows. But if the conflict is protracted and global economic recession becomes severe, China will likely run into trouble sooner than it can sustain its present energy diplomatic initiative.
i) In a scenario where the U.S. and Iran reach a short-term ceasefire or the war ends, freedom of navigation will likely be restored in the Strait of Hormuz. Resumption of regular transit through the waterway and the ending of Iran’s “renminbi-based access system” will see international shipping quickly revert to U.S. dollar settlement. This will in turn disintegrate the path-dependency on CIPS that the partial blockade has created.
The reliance of Southeast Asian nations on Chinese energy aid is driven by immediate survival needs rather than long-term strategic alignment. As soon as Middle Eastern supplies stabilize, these countries will likely pivot back to their energy and security arrangements with the U.S. as they seek to restore the balance of power in the region. This rebalancing entails the rapid dissipation of Beijing’s “oil diplomacy” influence.
ii) Should the war drag on, a deep global recession becomes a real possibility if oil prices are sustained above $130 per barrel. This would shrink consumer markets in Europe and the United States, significantly reducing demand for Chinese exports.
The core of Beijing’s 15th Five-Year Plan is the promotion of so-called “new quality productive forces,” including electric vehicles, robotics, and high-end AI equipment. However, these high-value-added products are highly dependent on stable demand from the global middle class. Against the backdrop of a financial storm, a plunge in global orders would leave China facing severe overcapacity, potentially triggering domestic deflation and an unemployment crisis.
While China gained a short-term cost advantage by stockpiling crude oil, its growth targets (4.5 percent to 5 percent) still depend on large-scale exports. If a global recession causes China’s total export value to fall by 15 percent to 20 percent, the cost savings from oil reserves will be insufficient to offset the GDP loss from shrinking exports.
Furthermore, a financial crisis in the U.S. would jeopardize global liquidity. Although China possesses massive foreign exchange reserves, its domestic real estate debt and local government debt issues could be triggered by a deteriorating external environment, leading to a simultaneous crisis of internal troubles and external threats.
4. Beijing’s “oil diplomacy” is a classic case of CCP opportunism during a crisis. However, the PRC’s effort to expand its influence is highly situational and will be hard to sustain as the crisis evolves. In the long run, the status of the “petro-yuan” remains constrained by the renminbi’s lack of full convertibility and capital controls.
The real challenge for Beijing is how to profit from the crisis without triggering a global economic collapse. If the war ultimately drags the U.S. and Europe into a prolonged depression, China’s role as the “world’s factory” and its push for “new quality productive forces” would lose their economic foundation. The PRC’s current energy largesse cannot obscure its deeper vulnerabilities.
2 Beijing redefines ‘political performance’ ahead of key local reshuffles
Xi leadership emphasizes political discipline
March 27
The CCP Politburo held a meeting to review the regulations governing the work of local Party Committees (中國共產黨地方委員會工作條例). Key points of the meeting include:
- Local Party Committees must resolutely uphold the “quan wei” (authority and prestige) of the Party Central with Comrade Xi Jinping at the core, and treat the implementation of central decisions as the top priority.
- Local Party Committees must “grasp firmly and persist” (扭住不放) in implementing decisions made by the central authorities, while also exercising initiative in light of local conditions.
- Local Party Committees bear inescapable responsibility for planning development and ensuring security. They are required to fully and accurately implement the new development philosophy, promote high-quality development, safeguard livelihoods, and maintain social stability.
- Local leadership teams are required to strengthen democratic centralism, improve decision-making procedures, and refine “negative lists” and supervision mechanisms.
Leading cadres are required to enhance theoretical study, strictly implement the central Eight-Point Regulation, address formalism, and uphold integrity standards.
March 30
A training meeting for central guidance teams on “establishing and practicing the correct view of political performance” was held in Beijing. Shi Taifeng, member of the Politburo and deputy head of the Central Party Building Leading Group, attended the meeting and delivered a speech. The meeting was chaired by Liu Jinguo, secretary of the Secretariat and deputy secretary of the Central Commission for Discipline Inspection.
Key content in the meeting includes:
- Party Central has decided to dispatch eight central guidance teams to supervise and guide learning and education efforts in 20 selected regions and units. These include local governments such as Shanxi, Liaoning, and Jiangxi; central agencies such as the Ministry of Housing and Urban-Rural Development and the National Cultural Heritage Administration; financial institutions and major state-owned enterprises such as the Export-Import Bank of China and Baowu Steel; as well as universities including Nankai University and Wuhan University.
- Guidance teams are required to study and implement Xi Jinping’s important instructions, improve ideological understanding, address prominent issues, and establish institutional rules.
- Guidance teams are also instructed to adopt “hard measures,” including focusing on typical cases, addressing ongoing issues, and issuing public notifications (抓典型、抓現行、抓通報).
March 31
The General Office of the Standing Committee of the National People’s Congress, together with the Central Organization Department and the Central Propaganda Department, held a meeting in Beijing to deploy work for county- and township-level people’s congress election cycles.
Shi Taifeng, head of the Central Organization Department, and Li Hongzhong, vice chairman of the Standing Committee of the National People’s Congress, attended the meeting and delivered speeches.
Shi said that adherence to and strengthening of the Party’s overall leadership — especially the centralized and unified leadership of Party Central — must run through all aspects of the election process. Political standards must be prioritized, with strict vetting of candidates in terms of political stance, competence, integrity, and structural composition.
Li emphasized the need to elevate political awareness, thinking, and action in election work. He also called for firmly upholding centralized Party leadership as the highest political principle to ensure the correct political direction of the elections.
The meeting was attended by officials from the Central Organization Department, Central Propaganda Department, the General Office of the NPC Standing Committee, the Legislative Affairs Commission, and other relevant bodies, along with representatives from provincial-level people’s congresses, Party organization departments, propaganda departments, and major central media outlets.
April 1
Qiushi, the CCP Central Committee ideological journal, published an important article by Xi Jinping titled “Establishing and Practicing the Correct View of Political Performance” (樹立和踐行正確政績觀).
The article is a compilation of key statements by Xi between December 2012 and February 2026. Main points of the article include:
- Cadres are warned against pursuing promotion through “vanity projects” (面子工程) or falsified data. Such behavior may lead to them being held accountable.
- Cadres are urged to return to the ethos of being “public servants,” taking “I will have no self and will not fail the people” (我將無我，不負人民) as the highest moral pursuit.
- To set the tone of “high-quality development” at the start of the 15th Five-Year Plan, local governments are required to adhere to scientific development principles despite the pressure of evaluations, and to avoid unrealistic or forced actions.
- The central authorities will utilize strict institutional rules and scientific assessments to transform the “correct view of political achievements” from mere “verbal requirements” (口頭要求) into an actionable code of conduct.
Our take
1. The PRC will commence its five-yearly transition cycle for Party Committees at the provincial, municipal, county, and township levels in the second half of 2026. The reshuffling of local leading cadres is also a “prelude battle” of sorts for key personnel reshuffles at the 21 Party Congress in 2027. At this critical juncture, the Xi Jinping leadership is stepping up scrutiny of political performance — ranging from articles exhorting the need for ideological discipline and regulations tightening institution constraints — in what is likely a move to “sieve” out potentially problematic elements before critical appointments are made next year
The underlying logic of Beijing’s move is as follows: Faced with economic headwinds and local debt risks, the central government is attempting to reclaim local autonomy by redefining what constitutes “political achievements,” and in doing so, transform what was once an “efficiency competition” within the administrative sphere into an absolute test of political loyalty. In theory, the redefinition of “political achievements” should resolve Beijing’s long-standing troubles with bureaucratic “inaction” and “orders not leaving Zhongnanhai” (local authorities improperly implementing or interpreting the central government’s orders) that have plagued the central leadership.
2. Beijing’s recent initiatives concerning “political performance” suggest that the evaluation of “political achievements” will not be solely quantitative, but will contain qualitative benchmarks tied to loyalty to Xi Jinping and the CCP.
Historically, the “political achievements” of local officials were assessed on quantitative indicators heavily centered on GDP and economic performance. Such indicators meant that local officials had a degree of discretionary autonomy in how they pursued policies. However, the latest Qiushi piece by Xi explicitly demands a proper balance between “conspicuous achievements” (顯績) and “latent achievements” (潛績), as well as emphasizes the ethos that “success does not necessarily have to occur during one’s own tenure.” While this seems to encourage local leaders to think beyond their term in enacting policy and not kick the proverbial can of troubles down to their successors, it also leaves them more vulnerable to being held accountable when problems emerge years after they have left their posts.
The central authorities now require cadre evaluations to involve “close observation,” assessing their thinking on major issues and their attitudes toward fame and personal gain. These ambiguous evaluation standards essentially mean that “hard metrics” for assessing the “political achievements” of officials now contain “subjective” factors like “political loyalty,” with Beijing likely wanting “correct political performance” to be interpreted as the precise implementation of central directives (such as the high-tech transformation outlined in the 15th Five-Year Plan). But the ambiguous nature of the evaluation standards also encourages officials hunting for promotion to focus on “interpreting the intentions of superiors” and “demonstrating loyalty” instead of doing a good job in managing their localities.
3. Beijing’s revision of the regulations governing the work of local Party Committees aims to strengthen the responsibility of local leading cadres and serve as a core institutional weapon against regional deviations.
The regulations establish “resolutely upholding the ‘quan wei’ of the Party Central with Comrade Xi Jinping at the core” as the primary political criterion, and require local Party Committees to “grasp firmly and persist” all matters that the “Xi core” decides upon.
The regulations also explicitly propose refining “negative lists” and strengthening supervision mechanisms. The introduction of “negative lists” effectively quantifies the boundaries of local authority. In the past, local governments could exploit “policy flexibility” in pursuing local protectionist policies or engaging in illicit funding activities. Such practices, however, are now directly included within the scope of disciplinary accountability. This “downward pressure on responsibility” mechanism makes the local Party secretaries the “primary guarantor” of the implementation of central policies at the local level.
Further, the regulations require leading cadres to enhance their professional competence to meet the demands of “high-quality development” in the 15th Five-Year Plan, while simultaneously shouldering the responsibility for “comprehensive and strict Party self-governance.” This means local leaders must not only understand the economy (particularly the “new quality productive forces”), but also act as Party Central’s political enforcers in ensuring integrity and discipline during the personnel reshuffle process.
4. The eight central guidance groups dispatched by Beijing to supervise 20 specific units operate in a manner that demonstrates a powerful intent to deter deviance in political performance.
During the March 3o training session in Beijing, Shi Taifeng and Liu Jinguo emphasized that these groups must provide “genuine supervision and substantive guidance” (真督實導), including “focusing on typical cases, addressing ongoing issues, and issuing public notifications.” The call to “address ongoing issues” is likely meant to intimidate potential wrongdoers because it suggests that the central government anticipates that local officials will engage in last-minute data manipulation or rushed spending on the eve of the leadership transition in the second half of 2026.
The areas that will be supervised include high-debt provinces such as Guizhou and Yunnan, as well as key departments involving public welfare and risk prevention, such as the Ministry of Housing and Urban-Rural Development and the Agricultural Development Bank of China. This indicates that the central government is precisely targeting areas most prone to engaging in fraudulent activities to pad their “political achievements,” or so-called “distorted performance incentives.”
Concurrently, Beijing’s campaign to “establish and practice the correct view of political achievements” that was launched immediately after the Chinese New Year period in February 2026 will continue through the end of July. The primary targets of this campaign are local leadership teams and leading cadres.
5. Beijing’s recent initiatives and documents on “political performance” do not mention the 21st Party Congress. However, there is a clear logical link between the tightening scrutiny of local elections in 2026 and top-level personnel reshuffles in 2027.
The deployment meetings for the 2026 county and township-level people’s congress transitions emphasized “selecting and strengthening leadership teams,” while prioritizing the political criteria. This reflects the Xi leadership’s desire to ensure a smooth leadership transition all the way up to 2031 (22nd Party Congress). In particular, 2026 is a critical window for promoting elite officials born in the 1970s and 1980s into provincial and municipal leadership roles. Under the guise of “rectifying deviations in political achievement views,” the Xi leadership is using the political performance campaign to clear out officials who rose during the Jiang Zemin and Hu Jintao eras and who may still retain “localist” tendencies (i.e. loyal to local interest networks), thereby making room for a younger cohort aligned with Xi.
The central government has essentially constructed a “closed loop of accountability” by revising regulations to strengthen the responsibilities of Party Committees. If a locality sees strong economic development, credit will be given to leading cadres who hold the “correct view of political achievements” and the central government’s guidance. But should debt crises or social conflict break out, the blame will be placed on local Party Committees for “distorted political performance” or “failure to implement responsibilities.” This political logic ensures that the central authorities will always maintain the high ground of “political correctness” even if crises stemming from Beijing’s policy missteps occur during the lead up to the 21st Party Congress.
6. The local leadership reshuffles in the second half of 2026 represent a key step for Xi Jinping in strengthening the accountability of local Party Committees and enforcing precise political discipline. Local officials will find their autonomy drastically curtailed as they strive to adhere to the new standards of “political performance.”
Beijing’s effort to boost “political performance” in the localities could have some positive effects, including curbing data falsification through “addressing ongoing issues.” However, the intensification of political scrutiny could see local officials feeling pressure from above to engage in “defensive inaction” when they perceive the logic of political survival as “doing more leads to more mistakes, doing less leads to fewer mistakes.” Paradoxically, the PRC’s governing efficacy could continue to decline even as local Party Committees are held to higher standards of accountability.
All in all, the Xi leadership’s “political engineering” in the first half of 2026 is set to galvanize the entire Party’s attention around personnel positioning and political loyalty ahead of the 21st Party Congress in 2027. This represents another effort by Xi Jinping to consolidate power to an even higher degree as the PRC enters the 15th Five-Year Plan period and a new political cycle where the last dregs from the era of his predecessors are eased out of the bureaucracy.
