Wednesday, January 11, 2012

China to Continue Oil Imports from Iran

China defended its purchasing of Iranian oil as necessary for its economic development. The Chinese Vice Foreign Minister Zhai Jun said so after a visit to China by US Treasury Secretary Timothy Geithner.

“Iran is an extremely big oil supplier to China, and we hope that China's oil imports won't be affected, because this is needed for our development," Zhai said [Reuters, 11 January].

Secretary Geithner held meetings on Wednesday with senior Chinese officials including Premier Wen Jiabao and Vice President Xi Jinping seeking support for new US sanctions targeting the flow of Iran’s oil revenues through the global banking system. China is Iran's biggest oil customer.

“We oppose applying pressure and sanctions, because these approaches won't solve the problems. They never have,” Zhai told reporters. “We hope that these unilateral sanctions will not affect China's interests,” he added.

However in a pricing and contract terms dispute with Iran, China has reduced its crude purchases for January and February. It is believed that China is using the weakened Iranian position to sell its crude to some of its old customers, both in Europe and Asia, to obtain bargain prices.


Anonymous said...

In all seriousness, Iran should consider replacing Engish with Chinese in secondary schools. Not as a political statement, but simply because that's where Iran's future lies.

Anonymous said...

that is not a solution; you can not get away with your problems; you have to solve them - you have to accept them as your problems; that is the main problem of this regime: it can not accept problems which reside beyond its conceptual tools; that is why they resist any internal reform ...

Anonymous said...

when iran has but few or even a single customer for oil, how will iran be able to avoid selling at a heavily below-market price?

It's not like China can't buy elsewhere and it's not like the Saudis won't gladly increase production, as they did last summer, if it damages the Iranian regime.

The Chinese can be rather sharp traders and the ability to corner Iranian oil and re-sell it, with a chunk of the profits going into Chinese coffers instead of Iranian ones will prove very unappealing to Iran.

As long as sanctions tighten, Iran is going to be hurt quite badly.

Anonymous said...

Pretty soon the regime will except any price from China even $20 dollars a barrel just so that they can pay for their thugs to suppress the masses.

Anon 1:59 PM

If your that serious go and learn Chinese for yourself then emigrate to China because as you well know English is here to stay.Iran's future is with the world certainly not just China and the worlds choice is still English even the Chinese are learning English.

Anonymous said...

What the chinese say publicly and how they will act later might be 2 different things. Enough incentives form the Americans and Europeans, and they will decrease their import of Iranian oil.

Anonymous said...

January 11, 2012 9:30 pm (part #1)

Oil refiners sever links to Iran

By Javier Blas, Commodities Editor

European refiners have started to sever links with Iran, stopping spot purchases of crude ahead of a European Union meeting later this month that could impose a full oil embargo on Tehran.

Industry executives and oil traders said that some refiners have either stopped or reduced new purchases of Iranian oil, although they continue to receive monthly oil supplies under earlier long-term agreements, or term contracts, that they cannot break without incurring penalties.

“We continue to buy under term contracts but don’t deal with them any longer on spot transactions,” an official at a southern European refiner said. Other refining officials and several oil traders confirmed a reduction in spot deals.

Traditionally, refiners buy two-thirds of their oil under term contracts and the rest on the spot market, although the precise split varies from company to company. In the event of an embargo, European refiners could declare force majeure and cancel their term contracts without penalty.

“Refiners are cutting back on purchases of Iranian oil in response to new US sanctions and the anticipation of an EU embargo,” David Greely, head of oil analysis at Goldman Sachs in New York, wrote in a note to clients.

Companies are bracing themselves for an EU embargo on Iranian oil exports as western countries intensify pressure on Tehran to abandon its suspected nuclear weapons programme. The US has also introduced sanctions to penalise foreign financial institutions dealing with Iran’s central bank, which clear most oil exports.

Bankers said that European banks were steeping back from financing deals with Iran as result of the new US sanctions. “By the minute, banks are getting restricted [from financing deals with Iran],” the head of commodity trade finance at a leading bank said.

Anonymous said...

January 11, 2012 9:30 pm (Part #2)

Oil refiners sever links to Iran

The stoppage has forced Iran to start stockpiling crude at supertankers anchored in the Gulf. Gibson, a shipbroker, estimates that the amount of Iranian oil held in “floating storage” has increased from 28m barrels at the end of November to 32.5m barrels now. “People are generally stepping back because of the association with Iran. More and more people are voluntarily making that decision,” said Patrick Tye, senior shipping analyst at Gibson in London.

Iran is the world’s third-largest oil exporter and ships about 2.3m barrels a day, mostly to Asia. The EU buys about 450,000 b/d on average.

Oil prices have risen above $110 a barrel since Iran threatened to shut down the Strait of Hormuz, the world’s most important oil chokepoint, accounting for about a third of all seaborne traded oil. Oil fell to a low of $99 in October amid global economic growth worries.

US Treasury secretary Tim Geithner arrived in Beijing on Wednesday as part of an oil lobbying effort that Washington hopes will add to the pressure on Tehran. Also on Wednesday, an Iranian nuclear scientist was assasinatedin a car-bomb attack that Tehran blamed on Israel and the US.

Among European-based oil refiners companies, Royal Dutch Shell is the biggest buyer of Iranian crude under long-term term contracts, according to estimates from Argus Media, an industry publication. Other buyers include France’s Total, Repsol YPF and Cepsa of Spain, ENI, Saras and ERG of Italy, and Hellenic of Greece.

The US stopped importing Iranian oil in October 1987 and has successfully pressed European companies, including Total and Royal Dutch Shell, to stop investing in the country’s vast energy sector.

The Financial Times Limited 2012

Anonymous said...

"even $20 dollars a barrel"

The only recent Iranian president to sell oil for that price was the complete failure Khatami.

Anonymous said...

An Oil Strategy in Case Iran’s Navy Shuts Down the Strait of Hormuz: View

Let’s just say Iran makes good on its recent threats to shut down the Strait of Hormuz. And let’s say that with one-fifth of the world’s oil supply bottled up, the price of a barrel of oil then almost doubles, as some analysts predict, to more than $200.

What can the world do to bring prices down before a still- woozy global economy gets pushed back into recession?

Pipelines that circumvent the strait could carry to market at least 7 million of the 17 million barrels of tanker-borne oil that passes through the strait each day. The U.S. could, for the first time since the Gulf War in 1991, release oil from its 700 million-barrel Strategic Petroleum Reserve; other members of the International Energy Agency (set up after the 1973-74 oil crisis) could also tap the 90-day supply stocks that they are required to maintain.

The IEA has already prepared a plan to release as many as 14 million barrels a day in the event of a Gulf closure. Saudi Arabia, long the self-appointed swing man of the Organization of the Petroleum Exporting Countries, has a spare production capacity -- on paper, at least -- of about 3 million barrels per day; everyone else is producing almost flat out.

The U.S. now gets only about 9 percent of the oil it consumes from the Persian Gulf. Countries such as China, India, Japan and South Korea, however, rely on Gulf exports, particularly from Iran, to power their economies. In the European Union, debt-ridden Greece gets 14 percent of its oil imports from Iran, Italy 13 percent and Spain almost 10 percent. And because oil is a global commodity, as far as oil prices are concerned, what happens in the Persian Gulf does not stay in the Persian Gulf.

For all Iran’s missile-rattling, however, there is little reason to think it will carry through on its bluster. To block the Gulf would verge on economic suicide: Petroleum products account for 20 percent of Iran’s gross domestic product, 80 percent of exports and 70 percent of its government revenue. Any attempt to close the Gulf could also provoke a war with the U.S. and vaporize what diplomatic support and leverage Iran gets from countries (and clients) such as China.

Iran may not intend ultimately to close the strait, but its threats to do so can still instigate tremendous economic uncertainty with very real consequences, especially in a hyper- connected world wired with complex speculative instruments. The challenge is similar to dealing with terrorist groups such as al-Qaeda, which command our attention and resources through their potential no less than their actions. In either case, the goal is to balance the risks that such threats present with the costs of protecting against them.

More pipelines would be a good start. Unfortunately, the United Arab Emirates just announced that the opening of a 1.8 million barrel-per-day pipeline that circumvents the strait will be put off until May. The use of drag-reduction agents -- an estimated $600 million investment -- could increase the capacity of Saudi Arabia’s existing two pipelines that reach the Red Sea to as many as 11 million barrels per day. And if the Kingdom wants to bolster its reputation as a “stable, reliable” supplier of oil, it could invest the several billion dollars needed to build another pipeline -- a prospect that may be less painful if oil prices remain high. The current turmoil is another reason why Iraq needs to repair its pipeline to Turkey. At home, we support the building of the Keystone XL pipeline that will bring oil from Canada’s tar sands to market.

Anonymous said...

China is the enemy of the Iranian nation.

Anonymous said...

1. Iran will only close the strait if it is itself attacked, or subject to a blockade which is an act of war.

2. Saudi Arabia does not have any spare capacity. The 3 million barrel figure(or whatever number they make up) is an illusion designed to convince the West of its continuing importance and to distract from the fact that Saudi production is unstable and is approaching (or has already reached) the peak. Saudi Arabia has been trying and failing to get India and China to completely replace Iranian oil imports. The reason it has failed is that it simply cannot produce enough to replace them. If Saudi Arabia really had such capacity, its pathalogical hatred of Iran would have see it being offered at any price necessary to undermine Iran.

3. Iran is fully capable of destroying oil production facilities to prevent export as well as blocking the strait.

4. The idea that the SPR could be used to make up for the deficiency is laughable. Sure it would lessen the damage for 2 months, but after that the disaster would still occur.

5. Anyone who thinks China is going to allow its oil supplies from Iran to be cut off is delusional. That would most likely lead to China entering the war on Iran's side rather than the reverse.

6. Iran can survive without oil exports for a long time. Just witness the 1980's when oil exports were dramatically reduced, and its economy was far smaller than it is now. It has a robust economy, is self sufficient in food production, etc. Saudi Arabia and others however, cannot, as their economies are totally dependent on oil revenue.

7. Iran does not get 70% of its government revenue from oil exports, and the figure for trade is closer to 65%. As its non oil economy enjoys continuing explosive growth, these figures will decline rapidly.

Anonymous said...

Iran will never close the strait, China will not allow Iran to do so.

I hope Iran closes the strait, it will hurt them over the long term!

Anonymous said...

Anon 12:46 AM

Iran depends on 80 per cent oil exports.Who the hell gave you that figure at 65 per cent?
If the straights are closed by Iran then Iran will be the biggest loser.
And by the way what explosive growth are you talking about because most of the workforce is being laid off or half shift at best and some are not being paid for months.
And China India Turkey is dumping its junk in Iranian markets and closing down local economy.