As the US and Iran hammer out how to permanently reopen the Strait of Hormuz and restart the flow of Middle Eastern oil, the market’s next move may depend on one country absent from the negotiations: China.

The world’s second-largest consumer of crude oil, China, has pulled out all the stops to preserve supplies as the war in Iran has cut off access to more than 11 million barrels of oil per day. By cutting down on imports, relying on vast stockpiles and utilizing more clean energy, China has been able to cushion the impact of higher prices at home, if not alleviate it completely.

Those actions have been felt in the global market as well.

“China has played a critical role here to buffer this for the rest of Asia… thereby buffering the global economy,” said Daan Walter, principal at Ember, an energy think tank.

On Monday, Brent crude, the global benchmark, fell below $78 a barrel on expectations that the Strait of Hormuz, through which one-fifth of the world’s oil flows, could soon resume normal trade. Brent crude traded below $70 a barrel in the weeks before the US and Israel attacked Iran, and settled at a four-year high of $114 a barrel in early May.

With China’s global energy influence growing, analysts said its policy and consumption patterns will be pivotal for the market, regardless of how quickly the Strait of Hormuz reopens.

China’s ‘invisible hand’

In a research note earlier this month, Societe Generale analysts wrote that a 7% loss in global crude supply from the 1973 Arab embargo resulted in a 134% increase in the price of oil. But prices haven’t spiked nearly as much during the war in Iran, despite the conflict impacting 14% of global supply.

They attributed the contradiction largely to China as “the invisible hand that is rebalancing the market,” due to its ability to curb oil imports by about 3 million barrels per day – an amount nearly equal to Japan’s total crude demand.

China was able to significantly pare down consumption for several reasons. Before the war, China was building back-up crude inventories, aided by cheap deliveries of sanctioned oil from Russia and Iran, said Janiv Shah, vice president of oil markets at Rystad Energy.

Now it has more than 1 billion barrels of oil in commercial and strategic reserves, which it began tapping in May, analysts said.

“China has been putting a floor under prices,” Shah said. “This year, that pattern has reversed.”

The government also limited exports of refined products like diesel and gasoline to ensure domestic supply. That has disincentivized Chinese oil refiners, facing lower margins and cut off from overseas markets, from buying crude from the global market.

Meanwhile, China’s electric vehicle boom has offset the country’s need for fossil fuels. About one out of every two new passenger cars sold in China now is a new energy vehicle. According to International Energy Agency estimates, China’s EV fleet reduced oil consumption by about 1 million barrels per day last year.

“It has been a wonderful release valve for the global crude market,” said David Fishman, a principal at the Lantau Group specializing in China’s energy and power sector.

While elevated prices will likely continue to dampen demand from consumers and refiners, China’s ability to mitigate the global supply shock may be limited by how much it can maintain in fuel reserves, he said.

“The thing that can’t be sustained forever is the stockpiles of crude,” Fishman said. “If prices weakened, you’d expect the first thing they do is start to stockpile again.”

From shortage to supply glut?

After months anticipating the fallout from the worst oil crisis in history, the International Energy Agency is now warning that a reopening of the Strait of Hormuz could trigger oversupply next year.

In its monthly oil report released Wednesday, the IEA forecast that supply growth will outstrip demand next year by 4.7 million barrels per day, as crude production in the Middle East returns to normal levels.

“This may provide a welcome respite to the market and an opportunity to replenish depleted inventories, or to build new strategic reserves, as countries review their energy strategies and policies in response to the crisis,” the organization wrote in its report.

While global oil demand is projected to grow next year, the recent instability has bolstered interest in renewable energy, which could also chip away at crude consumption longer term. China, the world leader in EVs, batteries and solar, notched record exports of clean energy technology products in March following the start of the war in Iran.

unknown content item

-

“This acceleration to electrification is picking up,” said Cosimo Ries, an analyst at Trivium China who covers energy and autos. “We will have to see how the [US-Iran] negotiations will proceed, but broadly speaking this could be a great moment for global decarbonization.”

Muyu Xu, senior crude research analyst at Kpler, a commodities intelligence platform, said excess supply could arrive as early as next month. If the Strait of Hormuz reopens quickly, that means 100 million barrels of stranded oil injected back into the market, she said.

Meanwhile, Iran will likely aggressively ramp up its own production, particularly if US sanctions are lifted. But that may also make Iranian oil less attractive to China, which has been buying it at a discount because Iran under sanctions has few other means to sell.

However, Xu added that many countries have already fulfilled their crude demand for the summer, and China could again become crucial to restoring some balance to the market.

“This is just a totally different picture from just two months ago,” Xu said. “Right now, the country that has the ability to absorb oversupply is China. But the problem is: What does China want to buy?”

For more CNN news and newsletters create an account at CNN.com