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Tim Daiss

Tim Daiss

I'm an oil markets analyst, journalist and author that has been working out of the Asia-Pacific region for 12 years. I’ve covered oil, energy markets…

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Why China Will Continue To Buy Iranian Crude

Oil storage

As the U.S. and Iran continue to trade barbs over the restart of economic sanctions against the Islamic Republic, China is also entering the verbal fray.

On Monday, the head of the international office of China Petroleum and Chemical Industry Federation (CPCIF) Andrey Yu, said that “Chinese companies need the Iranian oil in any circumstances and will continue to buy it.”

“China doesn’t pay attention to the US sanctions on Iran; it is a routine between Iran and China and has nothing to do with the US. Oil, gas and trade shouldn't be influenced by the US anymore.”

He told the Islamic Republic News Agency that Chinese and Russian companies can fill up the vacuum of Total and other European companies, so it is highly improbable that Iran has a problem in excavating and investing in oil.

“Iran has been able to keep progressing in the past decades despite the sanctions,” he said, adding that Iran and China can have closer ties. “Whatever the US does cannot impede the cooperation between Iran and China.”

Yu’s comments come as the war of words between the U.S. and Iran escalate, with a geopolitically dangerous intersection - Saudi Arabia, OPEC’s de facto leader, and Iran’s bitter rival in the region.

Iran’s OPEC governor said late last month that Trump was mistaken to expect Saudi Arabia and other oil producers to compensate for supply losses caused by U.S. sanctions on Iran. Related: Oil Prices Jump As Saudis Cap Oil Supply

Since Trump took officer one-and-a half years ago, Washington and Riyadh have formed closer ties than during the Obama Administration, while the kingdom has indicated it would bow to pressure from President Trump to increase oil production in an effort to keep a lid on global oil prices ahead of crucial mid-term House and Senate elections in November.

However, in a possible step to reclaim its independence over Trump’s apparent intrusion, the kingdom cut oil production by 41,000 barrels per day (bpd) in July to 32.3 million bpd. The kingdom’s production dipped just a month after it reached a deal with OPEC and non-OPEC producers, including Russia, to hike output.

Geopolitical triangle

Many claim that Riyadh’s willingness to comply with Trump’s pressure via Twitter comes since the kingdom was instrumental in persuading the U.S. to jump start crippling economic sanctions against Tehran. Both Iran and Saudi Arabia are jockeying for geopolitical hegemony in the middle east in a dangerous game of cat and mouse in Syrian and Yemen, while Iran backed fighters in Yemen have recently fired missiles at Riyadh as well as Saudi oil tankers.

On Friday, Saudi Arabia intercepted two missiles fired by Yemen’s Houthi group on its southern Jizan province, al-Arabiya TV reported. Related: The Real Reason Behind The Next Oil Squeeze

The day before, the rebels claimed that an airstrike by the Saudi-led coalition fighting Shiite rebels hit a bus driving in a busy market in northern Yemen, killing least 50 people. The Saudi-led coalition said it targeted Houthis fighters who had fired a missile at the kingdom's south on Wednesday, killing one person who was a Yemeni resident in the area.

Trump's decision to reimpose sanctions against Iran over its nuclear development program set a ticking clock and renewed pressure over the Islamic Republic. Full sanctions on the country’s energy sector will kick in on November 1 and could remove as much as 1 million bpd at a time when the market has little room for artificial shocks.

U.S. energy secretary Rick Perry said in late June he believed that Saudi Arabia and Russia would be able to increase oil production to stabilize the oil market and compensate for the loss of Iranian barrels, a claim that some market observers disagree with.

“I am comfortable that Saudi Arabia is going to be able to increase their production to... 11 million barrels per day going forward, and that Russia will be able to increase their production, so the worldwide crude market does have some stability,” Perry said at a press conference at the World Gas Conference in Washington, D.C.

“We look at this as an opportunity for the OPEC members to fill this gap, if you will,” he added.

By Tim Daiss for Oilprice.com

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  • Mamdouh G Salameh on August 14 2018 said:
    China will continue to buy Iranian crude because it needs Iranian crude and also to show the United States that it doesn’t recognize its sanctions on Iran.

    Moreover, China can singlehanded neutralize US sanctions by two measures. One is to increase its purchases of Iranian crude which currently account for 750,000 barrels a day (b/d) or 35% of Iranian crude. The other is paying for its imports by the petro-yuan. In fact if the United States decides to escalate its trade war against China, China may decide to buy the entire Iranian oil exports amounting to to 2.2 million barrels of oil a day (mbd) as a retaliation against the US.

    And if the French oil giant, Total and other Western oil companies decide to withdraw from Iran because they can’t get an American waiver, Chinese and Russian companies can fill up the gap and help Iran develop its oil and gas industry. In fact, Russia is reported to be planning to invest some $ 50 bn in Iran’s oil and gas industry.

    And contrary to what US energy secretary Rick Perry is saying, Saudi Arabia and Russia can't between them add more than 300,000-400,000 b/d to global oil supplies.

    Still, this will not be needed to stabilize the global oi market as the market has not re-balanced completely yet. There is still a small bit of glut capable of taking care of outages in Venezuela, Libya and elsewhere.

    Moreover, US sanctions on Iran are doomed to fail as 95% of Iran’s oil exports go to countries which have already declared they will not comply with the sanctions, namely China (35%), India (33%), the European Union (20%) and Turkey (7%). The remaining 5% of Iran’s oil exports go to South Korea and Japan who have already said they will apply for a US waiver and most probably they will get.

    Dr Mamdouh G Salameh
    International Oil Economist
    Visiting Professor of Energy Economics at ESCP Europe Business School, London
  • Nada on August 15 2018 said:
    In the middle of the article Saudi Arabia output has been stated 32.3 million bpd. It is not obviously correct. It is whole OPEC output.
  • Ron White on August 17 2018 said:
    I hope Trump will be ousted soon. He is so ignorant, evil, and stupid. I do not believe he can score high enough, to be an idiot, on an intelligence test. He probably cannot bubble in his name on the answer sheet. I have never been so embarrassed. I would have thought that he would have been done away with, by now. It certainly would not be the first time a president has been done away with, will not be the last. When a head of state shows stupidity, he must be done away with, for the peace of the world.

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