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China’s Iranian Oil Weapon

Two reports out this week worth paying attention to which could greatly impact oil prices at a crucial moment in which leaders in Tehran are desperately urging China to purchase more Iranian crude: 

First, Reuters notes China continued importing Iranian oil in July for the second month since a US sanctions waiver ended, though at greatly diminished levels compared to the year prior, citing numbers from three data firms:

According to the firms, which track tanker movements, between 4.4 million and 11 million barrels of Iranian crude were discharged into China last month, or 142,000 to 360,000 barrels per day (bpd). The upper end of that range would mean July imports still added up to close to half of their year-earlier level despite sanctions.

And second, this via CNBC early this week, Brent and WTI price could crash if China buys Iranian oil. Bank of America is warning oil prices could potentially crash by $30 a barrel if China ramps up Iranian crude purchases. Reverses Loss After China’s Stronger Yuan Fix

The report summarized:

Bank of America Merrill Lynch warns the oil price could slip sharply if China buys Iranian oil.

Beijing could undermine Washington’s foreign policy stance by ignoring U.S. sanctions placed on Iran.

BofA is keeping its $60 per barrel price estimate in place for 2020.

Currently the Trump administration puts Iran's oil exports at a range of 50-70 percent going to China, and with around 30 percent going to Syria.

Related: Energy Storage Boom Goes Into Overdrive

With the US and UK now aggressively choking the Tehran to Damascus trade, given last month's UK Royal Marine intercept of the Grace 1 tanker off Gibraltar, Tehran's economic survival is ever more dependent on selling to China - a country powerful enough to bust US sanctions. 

Last week Iran's Vice President Jahangiri made a direct appeal to Beijing and "friendly" countries to up their Iranian crude purchases in statements made during a Chinese diplomatic delegation visit. 

“Even though we are aware that friendly countries such as China are facing some restrictions, we expect them to be more active in buying Iranian oil,” Jahangiri reportedly told visiting senior Chinese diplomat Song Tao.

Meanwhile, figures just prior to ending the waiver program:

You will find more infographics at Statista

China's crude imports from Iran have been plunging this summer, sinking almost 60 percent in June compared to a year earlier. But Beijing could unleash severe oil volatility on global markets if it decides to reverse course; the General Administration of Chinese Customs is set to publish exact details of July imports by origin in the last week of August.

This also as the Chinese Ministry of Commerce threatened countermeasures in response to Trump's fresh threats of a 10 percent tariff on $300 billion dollars of Chinese goods made a week ago.

By Zerohedge.com

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  • Mamdouh Salameh on August 10 2019 said:
    China which is the largest importer of Iranian crude oil accounting for 31% of total Iranian oil exports has never stopped even for one minute buying Iranian crude.

    China never recognized US sanctions against Iran and has no intention of complying with them now or ever. On the contrary, China has been buying Iranian crude in increasing volumes all through. Moreover, China has been defying US sanctions against Venezuela by helping to repair Venezuela’s refineries and raise its crude oil production.

    Were the trade war with the United States to escalate further, China could retaliate by nullifying the US sanctions regime against Iran altogether by buying the entire Iranian crude oil exports and paying for them in petro-yuan. China has so far refrained from such a drastic step because it didn’t want to escalate the trade war with the US further.

    According to the authoritative 2019 OPEC Annual Statistical Bulletin, Iran exported on average 1.85 million barrels a day (mbd) in 2018 despite US sanctions when western media was talking about a reduction of 500,000 b/d to 1 mbd as a result of the sanctions.

    Moreover, the Bulk of Iranian crude is being exported to countries which have never accepted US sanctions and have continued to buy Iranian crude, namely China, India, Turkey and even Russia (food-for-goods). Furthermore, Iran is managing to sell more of its crude in spot markets as well as to countries which don’t want to be identified for fear of US reprisals.

    What is causing this outpouring of misinformation about Iran’s oil exports is the frustration and anger that US sanctions against Iran have so far failed miserably. Not only foreign buyers of Iranian crude oil are receiving price discounts and other benefits from Iran but they are also rejoicing in helping frustrate US sanctions and defying the United States with impunity.

    President Trump and his advisers already know that they lost the trade war with China and are finding it hugely difficult to admit defeat, hence the prolonging of a futile war.

    President Trump has backed himself into a corner, leaving himself few face-saving ways to exit the trade war. Only one option is open to him now, namely to call off his trade war against China and negotiate an end to the war on China’s terms.

    And with the trade war escalating rapidly, the hawks in Washington might see their chance to convince President Trump to abrogate the time-honoured agreement the Nixon administration reached with China on the status of Taiwan. Were he to be foolhardy to take such action, he would have crossed a red line after which anything could happen between China and the US.

    One can already suspect the United States’ involvement in the political turmoil which has been taking place in Hong Kong for the last nine weeks. This has been highlighted when China published a photo of an American diplomat meeting members of the Hong Kong opposition. I wouldn’t be surprised if a pro-independence campaign follows soon in Taiwan with US instigation and blessing.

    Dr Mamdouh G Salameh
    International Oil Economist
    Visiting Professor of Energy Economics at ESCP Europe Business School, London

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