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Last year China, India, Japan, and South Korea accounted for 60 percent of Iran’s total oil exports, providing the country with $100 billion of revenue. As the EU oil sanctions take effect in July, Iran will feel an economic squeeze, which the West is hoping will force Tehran into talks over their nuclear regime. To further deepen the losses felt by Tehran the US are trying to encourage the Asian buyers to reduce their imports of Iranian oil. Unfortunately, the US have found that there suggestions have fallen on deaf ears, as South Korea and Japan are unwilling to cut imports, and China and India may well increase theirs.
Oil analyst Victor Shum, from consultants Purvin & Gertz said that, “these consumers depend on Iran for a good portion of their oil, particularly India and China. It's very difficult for them to switch.”
South Korea, a long-time ally of the US, bought 250,000 barrels of oil per day (bpd) in 2011, and has recently hosted visits by two senior US officials, who hoped to persuade the government in Seoul to cut back on Iranian purchases. However the Foreign Ministry says that no decision has been made due to fears that an alternative supplier will be difficult to secure.
Japan is also in a similar position as South Korea. Prime Minister Yoshihiko Noda promises that, “we'll cut oil imports from Iran" whilst continuing to search for alternative suppliers. However, he has also requested that President Obama grant Japan exemption from the sanctions preventing foreign institutions trading with Iran, until another source of oil is found. This could be legitimate, or just an excuse to earn the exemption so that Japan can continue to trade with Iran.
India who, along with China, rely heavily on Iranian oil for the explosive economic expansion that they have been experiencing over the past few years, seem to have no intentions to heed the US demands and have actually increased its purchases from Iran from around 340,000 bpd last year, to 550,000 bpd in January.
China also received a visit from a US senior official, non-other than the Treasury Secretary Timothy Geithner, hoping to persuade the People’s Republic to cut back on Tehran oil. China has been the least receptive Asian country to the US pleas. In fact they are actually using the pressure being felt by Iran due to the US efforts in order to negotiate lower oil prices, which in turn could lead them to purchase more oil from Tehran. As Shum states, “Chinese purchases of Iranian oil could increase substantially in coming months, particularly if Iran offers Beijing a discount on its oil sales.”
It looks as though US influence in Asia is not as strong as they hoped and that they may need to look for different ways to exert pressure on Iran.
By. Charles Kennedy of Oilprice.com
Charles is a writer for Oilprice.com