In a matter of hours, President Donald Trump is set to announce his decision on the Iran nuclear deal. Many are expecting him to pull the United States out of the deal and restore sanctions against the nation.
Among the deal’s signatories, China is likely to resist any unilateral American action, experts said.
Any sanctions on Iran would have a “negligible effect on China’s buying attitude,” said John Driscoll, director of JTD Energy Services in Singapore and a former oil trader whose career spans nearly 40 years.
China, alongside India, are the top two buyers of Iranian crude oil.
One of the world’s fastest growing markets for oil consumption, China “needs the oil,” and trade tensions with the U.S. would make Beijing even less likely to support sanctions from Washington, said Victor Shum, vice president of the energy group at IHS Markit.
“With trade skirmishes between the U.S. and China and all kinds of political issues, I see the resistance from Chinese crude buyers to comply [to U.S. sanctions against Iran],” added Shum.
Even so, China will try to keep its response measured as the world’s second-largest economy continues its bilateral trade negotiations with the U.S., said Benjamin Lu, an investment analyst for commodities at Phillip Futures.
The Chinese Foreign Ministry signaled last Wednesday that it wasn’t in support of the U.S. quitting the deal, but stopped short of criticizing any specific country.
Should the U.S. withdraw from the Iran nuclear deal, the Trump administration must decide on whether to wield powerful U.S. sanctions to punish countries that continue to do business with Iran.
Still, the market will find ways to circumvent any sanctions, such as transferring supplies between floating storage, using barter trade, or not using U.S. banks, according to analysts.
“The market will be resourceful,” said Driscoll.
For instance, Iranian traders have the option of trading in Chinese yuan-denominated crude oil futures on the Shanghai International Energy Exchange — circumventing any restrictions on dollar-denominated trade and U.S. banks.
Shum and Lu, however, said such a development may not be that immediate or apparent, as Shanghai oil futures trade is still a largely domestic affair. Beijing also would not want to be seen to be openly pushing back on U.S. sanctions as it negotiates bilateral trade with Washington, said Lu.
What seems to be certain is that the market will look for ways to trade Iran oil even amid sanctions, particularly as Iranian oil prices are likely to fall and be discounted as its pool of buyers shrink, making prices more attractive to the Chinese and other price-sensitive buyers, said Shum.
Here’s how Trump quitting the Iran deal is likely to play out among other major Asian oil importers:
U.S. allies Japan and South Korea will be under the most pressure to comply with sanctions due to their strategic relationships with Washington.
The two East Asian economic powerhouses are among the world’s top oil buyers alongside the U.S., China and India.
Yet companies in Japan and South Korea will be circumspect about sourcing, said Driscoll.
Still, companies that have built up commercial relationships with Iran after the deal was signed will be hard pressed to fulfill contractual obligations.
That will spur negotiations of when and how new sanctions are to be applied, with both countries likely to ask for wiggle room and time for commercial obligations to be fulfilled before complying with the new deal, Driscoll added.
Sanctions on Iran will be tough on India, which is a critical end user of Iranian oil due to the proximity between the two countries, said Driscoll.
India is Iran’s second-largest oil client after China.
The country is likely to ask the U.S. for leeway or exemptions to any sanctions as it navigates the new trading landscape, Driscoll projected.
Phillip Futures’ Lu said India will likely “quietly take Iranian oil from other avenues” instead.
Under previous Western sanctions against Iran, India imported Iranian oil via a barter-like system through a small state bank.
Source: cnbc china
No matter what Trump says on Iran, China will probably ignore him