If not for China , the oil price shock from the Iran war that continues to jolt the world would have been worse, says a new report from Toronto-Dominion Economics.

“China is an important part of the story,” said Marc Ercolao, an economist at TD, in the report on Wednesday, referring to steps taken by the world’s second-largest economy to cut back crude oil imports by an amount equal to approximately five per cent of global demand, helping to “offset some supply pressures over the past year.”

China is the world’s top importer of crude oil . Imports, which averaged about 45 million tonnes a month over the last five years, fell off a cliff to just under 30 million tonnes at the end of June, according to Bloomberg data.

Oil markets expert Rory Johnston, founder of research company Commodity Context, called the colossal drop in China’s imports the “Beijing Swing” in a note on Wednesday, and said that China accomplished the cut by ratcheting back crude oil refining along with a change in its policy regarding strategic reserve stockpiling.

That move — either a natural reaction of the Chinese markets or a policy decision on the part of the country’s leaders — helped to save the global oil market, Johnston said.

However, the breathing space, including that provided by China, could close, Ercolao warned.

The worst of the shock has also been kept at bay as producers such as Saudi Arabia rerouted barrels of oil, strategic reserves were released in massive quantities and higher prices killed off some demand.

“That resilience comes with an important caveat moving forward, in that many of the shock absorbers that helped stabilize the market are temporary or exhaustible,” Ecrolao said.

For example, the United States’s strategic petroleum reserves have fallen to their lowest levels since 1983, while the Organization for Economic Co-operation and Development reserves sit below pre-pandemic “norms.” The longer global oil holdings are stretched, the less flexibility the world will have to respond should the crisis enveloping Middle East shipping routes persist or expand.

But the weaknesses don’t end there.

There are also shortages in the gasoline and diesel markets , with stocks of both sitting below their five-year averages, Ercolao said, adding that this matters because it’s where inflation typically hits the hardest.

Similar to strategic reserves, China could also prove to be a temporary “shock absorber” if refiners there decide to ramp up production or beef up reserves, Ercolao said.

“It could create a meaningful new source of demand just as global balances tighten,” he said. “One of the adjustments that helped absorb the initial shock could become a source of future pressure.”

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In the Bank of Canada Business Outlook Survey for the second quarter, 30 per cent of respondents said they planned to increase spending on machinery and equipment over the next 12 months, the highest reading since Donald Trump become president of the United States.

National Bank of Canada economist Jocelyn Paquet attributed some of that optimism to the expectation of easing trade tensions with the U.S., however, there’s a chance some of those promising intentions could fade, especially since the survey was done prior to Trump’s latest round of tariffs, set to roll out on Aug. 19.

Still, Paquet said the reading could have more legs.

“It is also possible that businesses are beginning to feel the effects of the federal government’s investment-stimulating efforts,” she said in a note on Tuesday, adding that “we also suspect that companies’ investment plans are currently being driven by spending on artificial intelligence.”

The latest trade numbers support that theory, she said, as imports of computers and peripherals rose just over 55 per cent from May to June and are up 97 per cent for the second quarter.

“After a slow start, AI investment finally seems to be taking off in Canada,” Paquet said.

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Today’s Posthaste was written by Gigi Suhanic with additional reporting from Financial Post staff and Bloomberg.

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