Oil traders were tweaking their calculations Tuesday to prepare for a battle that they had thought had died down. West Texas Intermediate (WTI) rose 5.2 percent, its biggest gain in five weeks, as Washington and Tehran issued new threats over the Strait of Hormuz, while crude was heading toward $91 a barrel for three consecutive sessions on the steepest gain in a day in five weeks. The American attacks responded to an Iranian attempt to lay mines in the strait and an earlier attack on a military installation, President Trump said, and threatened more action if Iran fires back. The war is not over the six-month-old conflict between the United States, Israel and Iran has thrown the oil-laden waterway, which supplies about 20 per cent of the world's oil, back into the spotlight.

China has everything to lose if it does not get what it wants. Almost 38 per cent of all that passes through Hormuz goes to China ports, over twice as much as to India, its next biggest buyer. But that one thing alone makes buying decisions by Beijing, and not just in Middle East, the true swing factor on this year's oil price. The war first erupted in late February, and China had one of the largest crude cushions that any importer has ever constructed, with commercial and strategic stocks totaling over 1.3 billion barrels, accumulated over a year of steady crude purchases when prices were still low. The reserve allowed Beijing to do something unusual for the largest oil importing nation, to withdraw from the market almost completely.

The retreat was a dramatic one. Customs data released last week indicates that imports dropped to an eight-year low in May to 7.8 million per day, and to a 10-year low in June, when imports were 41 percent less than a year earlier. Rather than pursue barrels at now $100-plus prices, refiners just let what they had expire, while the drop in imports was met nearly entirely by inventory reductions. This, they say, is the biggest factor that crude has not spiked as much as initial war-time predictions.This, they say, is the main reason for crude not spiking as much as initial war-time predictions. China ended up taking the hit as it acted as the shock absorber for a market which had lost its main artery.

It started to break down when Gulf producers, who had unsold barrels, cut official selling prices for July and August. Imports rose 22 percent in July to about 8.45 million bpd, and the country's largest independent refiners, known as teapots, in Shandong began to restock inventories, which had fallen to below their yearly lows. Some of that buying went back on the road to Iranian and Russian barrels in particular because teapots are outside the dollar financial system and have proved to be much more difficult to sanction into submission than the state giants.

That's about when the last tankers' information becomes relevant and that's why this week's escalation is highly significant. The shooting broke out as Beijing was trying to fill up the stockpiles.

The renewed conflicts come at a bad economic time for Beijing. The official manufacturing gauge was 49.8 for August, the lowest since December 2022 but up from 49.2 in July, while the non-manufacturing measure remained at its slowest level since December 2022. The slowdown was due to sluggish household spending, as well as a property market that was looking for a bottom, with growth settling back to 4.3 percent in the April-June period, below Beijing's 4.5- to 5-percent goal.

The government, which is trying to bring some of its domestic manufacturers back from the brink, can ill afford more inflation in fuel and other inputs, and the small manufacturers and household budgets it is attempting to shore up are the ones most likely to be hurt. It also makes the yuan's journey against the dollar more complicated during this war, as traders are balancing the demand for the dollar as a safe haven with Beijing's central bank interventions in fixing the yuan.

This is the kind of tension that keeps coming back around and around. China's reserves remain sufficient to weather a few more price swings than to rush to buy overpriced cargoes, as it did in the spring. But it is the flexibility that has helped to keep the rest of the world's prices under control, and every barrel that Beijing is unwilling to purchase today could be a barrel that it requires tomorrow, especially if the teapot refiners are continuing to reduce their stockpiles they only recently started building up.

China could resume aggressive purchasing to shore up refining margins and ensure a supply before prices rise further putting a strain on its purchasing just when Hormuz throughput is declining again. Should it stall again, it would help insulate the wider market, but make its own energy security less secure as this conflict continues.

Beijing's decision is of critical importance to India and Japan and South Korea, the other big buyers of Hormuz crude, as China's forbearance has been a virtual subsidy for their imports this year. Gulf producers, who are also official pricing victims of the same swing buyer, have their own agenda of where Beijing is heading. After Tuesday's shooting sparks, it is evident that the notion of a waning war has been put on hold, and the market has moved its focus away from the strait and towards Beijing's moves on it.