China defiant on US Iran oil decision

US-imposed sanctions have crippled its economy, but Iran is not backing out of Syria

Deutsche Welle April 26, 2019 13:33:04 IST
China defiant on US Iran oil decision
  • On May 1, a US waiver for India, China and six other importers of Iranian oil runs out

  • China has objected to unilateral US sanctions on Iranian oil exports

  • Oil prices surged to a six-month high after the Trump administration brought back the sanctions

Oil prices surged to a nearly six-month high after the US government said it would not extend sanctions exemptions to countries importing oil from Iran when they expire in early May.

Eight governments — India, China, Turkey, Greece, Italy, Japan, South Korea and Taiwan — had been given six months to wean themselves off Iranian oil. Greece, Italy and Taiwan are believed to have eliminated imports from Iran.

China and Turkey have objected to unilateral US sanctions on Iranian oil exports, warning that it could disturb regional stability.

Defiant China

The Trump administration’s move to stifle Iran of much-needed oil revenue is expected to hurt Chinese oil companies. Iran is China’s seventh-largest crude oil supplier, accounting for nearly 6% of oil imports last year.

Beijing has protested that the sanctions “will contribute to volatility in the Middle East and in the international energy market.”

China’s defiance is likely to complicate matters at a time Beijing and Washington are in discussions to ease trade tensions.

“Iran sanctions are going to be a big challenge for the US-Chinese relationship,” Jason Bordoff, the director of Columbia University’s Center on Global Energy Policy and a former energy adviser to President Barack Obama, told the New York Times.

Bordoff said if Chinese imports do not drop quickly, the US sanctions could be applied to Beijing’s central bank, the People’s Bank of China.

International oil prices surged about 3% to top $74 (€66.1) a barrel — a nearly six-month high — immediately after the US decision, underscoring uncertainty over oil supplies.

The recent outbreak of violence in Libya also threatens to disrupt supply and has been weighing on oil prices.

The Trump administration has said it is working with Saudi Arabia and the United Arab Emirates to bridge any gap in supplies. Riyadh has so far refused to commit to increasing oil output. Saudi Arabia, the world’s top oil exporter, has supported President Donald Trump’s decision to end waivers not only because Iran is its main foe, but also because a rise in oil prices means higher revenue for the kingdom.

Officials in Riyadh were disappointed after Washington exempted major Iranian oil importers from sanctions in November, causing oil prices to plunge to around $50 a barrel from more than $85.

They had expected a tougher stance from the Trump administration and had increased their own production to bridge the gap resulting from Iranian oil going off the market.

The New York Times reported on April 21 that Middle Eastern oil executives are doubtful Riyadh will immediately decide to pump more oil, in part because of Washington’s November decision to give sanction exemptions.

The Russia factor

Saudi Arabia has been cooperating with Russia in recent years to manage global oil supplies.

Earlier this month, however, Moscow — which has struggled to comply with a pact with OPEC countries to cut their combined oil output — signalled that it wanted to instead raise oil output to take advantage of recent spike in oil prices.

Russia stands to benefit from Washington’s decision on Iranian oil as it would mean raising output to bridge the shortfall and keep oil prices from spiralling.
Russian President Vladimir Putin has said existing oil prices suited Russia, which relies heavily on sales of oil and natural gas.

But should Russia refuse to oblige the US and keep its oil output at current levels, oil prices could go through the roof and hurt an already fragile global economy.

Isolating Iran

US secretary of state Mike Pompeo said Monday that the latest decision “intended to bring Iran’s oil exports to zero.”

Oil is the lifeline of the nation, which continues to export one million barrels per day (bpd). It exported 2.7 million bpd before the sanctions kicked in last year.

Pompeo said so far, the sanctions had deprived the regime of more than $10 billion in oil sales.

“Iranian exports will not actually reach zero,” Rome said. “China will continue buying Iranian crude, perhaps as high as several hundred thousand bpd, to save face. China may barter for the oil or wall off banks to handle transactions in renminbi. India will likely take a similar position.”

While sanctions have crippled the Iranian economy and have led to shortage of food and medicines, they have not really forced Tehran to give up its military role in the Syrian conflict or end support for militias in the region.

Iran has repeatedly threatened to disrupt the flow of oil through the Strait of Hormuz if it’s prevented
from using the Persian Gulf through which about a third of all oil traded at sea passes.

Such a move could threaten Saudi exports as the route is used for most oil shipments from the kingdom.

 

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