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US-China trade war likely to benefit Iran: Experts

US-China trade war likely to benefit Iran: Experts
20 Jun
12:09

An unfolding trade war between the US and China may benefit Iran which sells much of its crude oil to Asia’s economic powerhouse.

On Monday, US President Donald Trump threatened to escalate the tariffs fight with China into an all-out trade war, promising to impose massive duties on Chinese goods.

China has threatened to retaliate by slapping duties on several American commodities, including oil which has been flowing in greater volumes to the world’s biggest consumer of crude in recent years.

According to energy experts, a cut in Chinese purchases of US oil may boost Iran’s sales, which Washington is trying to curb with new sanctions it announced in May.

“The Chinese may just replace some of the American oil with Iranian crude,” John Driscoll, director of consultancy JTD Energy Services, told Reuters.

The first round of the new US sanctions are scheduled to go into effect on August 6. It would include a universal ban on Iran over buying or acquiring US dollars as well as restrictions over purchases of crude oil from the country and investing in its oil sector projects.

The launch of yuan-denominated Shanghai futures in March has created a lot of enthusiasm among international companies seeking to tap China’s bustling commodity markets.

However, China’s state-run companies are expected to stand their ground in trade with Iran, like what they did in 2011 when the Islamic Republic came under intensified Western sanctions.

“China isn’t intimidated by the threat of US sanctions. They haven’t been in the past. So in this diplomatic spat they might just replace US crude with Iranian oil. That would obviously infuriate Trump,” Driscoll said.

China remained the largest export destination for Iranian oil in April, with flows rising to 714,467 barrels per day (bpd), up just over 20,000 bpd from March.

Trump on Monday directed the US Trade Representative’s office to begin drawing up a list of $200 billion worth of Chinese goods to hit with a 10% tariff, dwarfing the size of previous trade actions against China.

The threatened tariff would make US oil more expensive versus supplies from other regions, forcing Beijing to source it from other suppliers.

Reuters quoted an official with a Chinese state oil major as saying that they were “caught by surprise that crude oil is on the list” of Beijing’s tit-for-tat measures.

According to the news agency, US crude oil shipments to China have soared in value recently, jumping from just $100 million per month in early 2017 to almost $1 billion per month currently.

“With Trump’s politics, we’re in a world of re-aligning alliances. China will not just swallow US tariffs,” said Driscoll.

“This is tit-for-tat petroleum diplomacy,” he said, adding OPEC and non-OPEC producers are “the big beneficiary of all this oil diplomacy, as it will squeeze global spare oil capacity and likely push up crude prices.”

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