xizhimen
Experienced member
- Messages
- 7,391
- Reactions
- Nation of residence
-
- Nation of origin
-
The Iran-China Axis Is A Fast Growing Force In Oil Markets
OilPrice.com
Wed, March 24, 2021, 9:00 AM
One of the things that doesn't get a lot of discussion in the press is the under-the-table relationship Iran and China have had when it comes to oil. At first glance, they wouldn't seem to have a lot in common. One is a theocracy with a radical view of non-believers and the other is probably the only example of a successful communist dictatorship since this form of government was created.
But, if you look a little deeper they have a couple of things that align their mutual interests strongly. The first is they are both absolute dictatorships, meaning the institutions of government and national policies can be changed at the whim of those at the top. The second thing they have in common, and this is the main takeaway, both countries have serious geopolitical issues with the United States.
Iran suffers from years of sanctions imposed primarily by the U.S. to compel them to comply with U.N. resolutions regarding their atomic program. China views this century as the one in which they displace America as the world's dominant Super Power. The place where these two authoritarian government’s worldviews align is in their opposition to the U.S.
It's worth noting China's apparent success has been funded by western economies over the last 75-years, thanks to our desire to buy everything as cheaply as possible. In that time, China has become the manufacturing center for the world and amassed immense wealth in doing so. The pandemic has caused a rethinking of the wisdom of outsourcing strategic commodities to despotic regimes, but for now, if you buy something other than food odds are it was made in China.
What interests us primarily is the extent to which China and Iran have found common ground in thwarting the U.S. sanctions on Iranian oil sales. Many countries have fallen in lock-step with the American sanctions and have refused to do business with Iran. A few have not, and notably among them China. One of the few countries which can flout U.S. edicts with relative impunity, China has opened their ports wide to tankers carrying Iranian crude thus dulling the effect of the sanctions. A win-win for each country on a number of fronts.
China and Iran in modern times
The two countries have a multi-decade history of finding commonality when it comes to heading off U.S. interests. Beginning in the late 1980s when Iran first began to flex its military muscles outside its own borders, China has supplied the regime with ship-killer Silkworm missiles to enable it to directly threaten U.S. fleet movements through the straits of Hormuz. Over the decades, China has often been Iran's backstop in the geopolitical theatre, and now the two countries have embarked on an ambitious partnership that could lead to a vastly expanded commercial and military Chinese presence in Iran. The New York Times is quoted as saying-
“The partnership, detailed in an 18-page proposed agreement obtained by The New York Times, would vastly expand Chinese presence in banking, telecommunications, ports, railways, and dozens of other projects. In exchange, China would receive a regular — and, according to an Iranian official and an oil trader, heavily discounted — supply of Iranian oil over the next 25 years.”
And there you have it. China has secured a steady supply of Iranian oil for the foreseeable future. We will now discuss some possible implications that might emerge over the next few years in the oil and geopolitical arenas.
China's Iranian oil buying binge
China, whose economy had largely recovered from the virus by the spring of 2020, has been on an oil buying rampage to meet the demands of its restarting economy. That isn't really news. What is news is how the two countries have collaborated to help Iran evade U.S. sanctions. Sanctions which if we are honest, have not delivered on their intent-compelling the rogue Islamic country to turn away from its nuclear ambitions. Perhaps now we see why.
In an article carried in World Oil's March 11th issue, Bloomberg delved into the full extent of China's oil buying from Iran.
Chinese imports of Iranian crude will hit 856,000 barrels a day in March, the most in almost two years and up 129% from last month, said Kevin Wright, a Singapore-based analyst with Kpler. His figures take into account oil that’s undergone ship-to-ship transfers in the Middle East or in waters off Singapore, Malaysia, and Indonesia to obscure their origin.
China buys a lot of oil, almost 12 mm BOPD from a variety of sources to meet its incredible demand of over 30 mm BOPD. So makes sense that it distributes its business among a number of suppliers. What has made Iranian oil purchases particularly compelling is the discounting the rulers of Iran have applied to cargoes, in times when oil prices have been rising dramatically. The Bloomberg article noted that cargoes from Iran are priced $3-5/bbl less than typical benchmarks like Brent. When you are buying the quantities that Beijing is, that turns into real money very quickly.
But, there are deeper implications in this rabid consumption of oil.
China is building storage tanks at a break-neck pace
China is stockpiling oil at a pace unrivaled in the developed world. An example of this tank building spree was discussed in a Reuters article. In a marked dichotomy with the U.S., China is building oil inventories by design. And in another shift from tradition, private firms are playing a lead role in what is estimated to be a 100 mm bbl addition in 2021 to China's oil storage capacity.
Reuters Satellite image showing new tank construction in a commercial oil storage facility in Rizhao.
Dekun
China's oil buying helped stabilize the market in 2020 when prices crashed. This activity also gave them access to huge volumes of crude at discounted prices.
As China imports about 75% of the oil it uses it just makes sense for it build inventories. This is particularly true given its belligerent stance regarding the U.S. presently. A stance that may in some measure be a subliminal message to America to back off. In 2019 the U.S. sanctioned Cosco shipping, China's primary oil tankering company for transporting Iranian oil. Sanctions that were partially reversed not long after in trade negotiations with China.
Having a huge inventory of crude gives China a buffer if oil shipping lanes are shut down for any lengthy period of time.
Putting all of this together
China announced to the world in 2013 that it would embark on an ambitious plan, called the "Belt and Road" (BRI) initiative to vastly expand its influence across dozens of Middle Eastern and Asian countries. This was a signature mark of the then newly installed Chinese President Xi Jing Ping, (who now seems to be "President for Life.")
Introduced with a lot of pomp and circumstance, the BRI was couched in language that recalled the "Silk Road" trade routes of yesteryear, a parallel goal, but really provided a shield for China's true intentions. That being filling a void left by waning American influence in these regions and promoting their Chinese Century ambition in which they displace the U.S. as the reigning global economic and military power. An article published by the Council of Foreign Relations- a think-tank that publishes position papers on global topics, summarized the BRI concerns for affected countries in a few words.
United States shares the concern of some in Asia that the BRI could be a Trojan horse for China-led regional development and military expansion.
Singling out Iran for special emphasis fits neatly into China's global strategy to project its power across the economic and geopolitical spectrum. What better way for the Asian superpower to announce to the world its arrival on the world stage than to thwart key UN sanctions on the country? Sanctions primarily enforced and supplemented by the country it is determined to displace from the top, The United States of America.
finance.yahoo.com
OilPrice.com
Wed, March 24, 2021, 9:00 AM
One of the things that doesn't get a lot of discussion in the press is the under-the-table relationship Iran and China have had when it comes to oil. At first glance, they wouldn't seem to have a lot in common. One is a theocracy with a radical view of non-believers and the other is probably the only example of a successful communist dictatorship since this form of government was created.
But, if you look a little deeper they have a couple of things that align their mutual interests strongly. The first is they are both absolute dictatorships, meaning the institutions of government and national policies can be changed at the whim of those at the top. The second thing they have in common, and this is the main takeaway, both countries have serious geopolitical issues with the United States.
Iran suffers from years of sanctions imposed primarily by the U.S. to compel them to comply with U.N. resolutions regarding their atomic program. China views this century as the one in which they displace America as the world's dominant Super Power. The place where these two authoritarian government’s worldviews align is in their opposition to the U.S.
It's worth noting China's apparent success has been funded by western economies over the last 75-years, thanks to our desire to buy everything as cheaply as possible. In that time, China has become the manufacturing center for the world and amassed immense wealth in doing so. The pandemic has caused a rethinking of the wisdom of outsourcing strategic commodities to despotic regimes, but for now, if you buy something other than food odds are it was made in China.
What interests us primarily is the extent to which China and Iran have found common ground in thwarting the U.S. sanctions on Iranian oil sales. Many countries have fallen in lock-step with the American sanctions and have refused to do business with Iran. A few have not, and notably among them China. One of the few countries which can flout U.S. edicts with relative impunity, China has opened their ports wide to tankers carrying Iranian crude thus dulling the effect of the sanctions. A win-win for each country on a number of fronts.
China and Iran in modern times
The two countries have a multi-decade history of finding commonality when it comes to heading off U.S. interests. Beginning in the late 1980s when Iran first began to flex its military muscles outside its own borders, China has supplied the regime with ship-killer Silkworm missiles to enable it to directly threaten U.S. fleet movements through the straits of Hormuz. Over the decades, China has often been Iran's backstop in the geopolitical theatre, and now the two countries have embarked on an ambitious partnership that could lead to a vastly expanded commercial and military Chinese presence in Iran. The New York Times is quoted as saying-
“The partnership, detailed in an 18-page proposed agreement obtained by The New York Times, would vastly expand Chinese presence in banking, telecommunications, ports, railways, and dozens of other projects. In exchange, China would receive a regular — and, according to an Iranian official and an oil trader, heavily discounted — supply of Iranian oil over the next 25 years.”
And there you have it. China has secured a steady supply of Iranian oil for the foreseeable future. We will now discuss some possible implications that might emerge over the next few years in the oil and geopolitical arenas.
China's Iranian oil buying binge
China, whose economy had largely recovered from the virus by the spring of 2020, has been on an oil buying rampage to meet the demands of its restarting economy. That isn't really news. What is news is how the two countries have collaborated to help Iran evade U.S. sanctions. Sanctions which if we are honest, have not delivered on their intent-compelling the rogue Islamic country to turn away from its nuclear ambitions. Perhaps now we see why.
In an article carried in World Oil's March 11th issue, Bloomberg delved into the full extent of China's oil buying from Iran.
Chinese imports of Iranian crude will hit 856,000 barrels a day in March, the most in almost two years and up 129% from last month, said Kevin Wright, a Singapore-based analyst with Kpler. His figures take into account oil that’s undergone ship-to-ship transfers in the Middle East or in waters off Singapore, Malaysia, and Indonesia to obscure their origin.
China buys a lot of oil, almost 12 mm BOPD from a variety of sources to meet its incredible demand of over 30 mm BOPD. So makes sense that it distributes its business among a number of suppliers. What has made Iranian oil purchases particularly compelling is the discounting the rulers of Iran have applied to cargoes, in times when oil prices have been rising dramatically. The Bloomberg article noted that cargoes from Iran are priced $3-5/bbl less than typical benchmarks like Brent. When you are buying the quantities that Beijing is, that turns into real money very quickly.
But, there are deeper implications in this rabid consumption of oil.
China is building storage tanks at a break-neck pace
China is stockpiling oil at a pace unrivaled in the developed world. An example of this tank building spree was discussed in a Reuters article. In a marked dichotomy with the U.S., China is building oil inventories by design. And in another shift from tradition, private firms are playing a lead role in what is estimated to be a 100 mm bbl addition in 2021 to China's oil storage capacity.
Reuters Satellite image showing new tank construction in a commercial oil storage facility in Rizhao.
Dekun
China's oil buying helped stabilize the market in 2020 when prices crashed. This activity also gave them access to huge volumes of crude at discounted prices.
As China imports about 75% of the oil it uses it just makes sense for it build inventories. This is particularly true given its belligerent stance regarding the U.S. presently. A stance that may in some measure be a subliminal message to America to back off. In 2019 the U.S. sanctioned Cosco shipping, China's primary oil tankering company for transporting Iranian oil. Sanctions that were partially reversed not long after in trade negotiations with China.
Having a huge inventory of crude gives China a buffer if oil shipping lanes are shut down for any lengthy period of time.
Putting all of this together
China announced to the world in 2013 that it would embark on an ambitious plan, called the "Belt and Road" (BRI) initiative to vastly expand its influence across dozens of Middle Eastern and Asian countries. This was a signature mark of the then newly installed Chinese President Xi Jing Ping, (who now seems to be "President for Life.")
Introduced with a lot of pomp and circumstance, the BRI was couched in language that recalled the "Silk Road" trade routes of yesteryear, a parallel goal, but really provided a shield for China's true intentions. That being filling a void left by waning American influence in these regions and promoting their Chinese Century ambition in which they displace the U.S. as the reigning global economic and military power. An article published by the Council of Foreign Relations- a think-tank that publishes position papers on global topics, summarized the BRI concerns for affected countries in a few words.
United States shares the concern of some in Asia that the BRI could be a Trojan horse for China-led regional development and military expansion.
Singling out Iran for special emphasis fits neatly into China's global strategy to project its power across the economic and geopolitical spectrum. What better way for the Asian superpower to announce to the world its arrival on the world stage than to thwart key UN sanctions on the country? Sanctions primarily enforced and supplemented by the country it is determined to displace from the top, The United States of America.
The Iran-China Axis Is A Fast Growing Force In Oil Markets
The relationship between China and Iran is not frequently addressed in the media, but with geopolitical tensions rising and an oil supply crunch on the horizon, it is going to become an increasingly important relationship
