Escalating U.S.-China trade war, a blessing in disguise for Iran’s oil industry?!

TEHRAN – The U.S.-China trade war, which has been going on for more than a year, entered a new phase last week as China not only imposed new tariffs on U.S. goods in retaliation against Trump's actions, but took the matter a step forward by putting "crude oil" on its tariff list.

The five percent import tariff, which Beijing has imposed on U.S. oil, means that the price of a barrel of oil for Chinese refiners will rise by about $3 per barrel. This would make U.S. oil imports not economically viable in long term.

The new tariffs on the U.S. crude oil, along with the heavy prices of shipping oil from North America, could push the Chinese buyers back toward Iranian crude oil.

As they are already buying oil from the Islamic country despite U.S. sanctions, the Chinese refineries might find it risk worthy to even increase their purchase of cheaper and more accessible Iranian oil rather than the more expensive and hard-to-get U.S. crude.

Trade war and new tariffs

Since more than a year ago, when the tension between the world’s two biggest economies started to escalate, global markets have been shadowed by the concerns of a dismal economic future. Oil prices have been following a downward pattern in the past few months, as the tension between the two sides has been escalating even more.

On Sunday, the new tariffs that the United States and China imposed on each other last month, came into force and for the first time since the beginning of the row, China officially started targeting U.S. crude oil in its tariffs.

In late-August, the U.S. imposed 15 percent tariffs on several Chinese goods - including footwear, smart watches and flat-panel televisions, and China levied five percent tariffs on the U.S crude oil. The issue of imposing tariffs on U.S. oil has come up so many times since the trade war started, however this is the first time that it is coming into effect officially.

Back in June 2018, China announced that it is considering new tariffs on U.S. oil imports. Following that announcement Chinese refiners halted all their imports and China’s imports of U.S. crude oil hit nearly zero in July 2018.

A look at the 2018 situation can tell a lot about the probable reaction of Chinese refineries to the new, actual tariffs. So it won’t be inconsequent to expect them to consider Iranian oil as a reliable and economically reasonable source for supplying their needs.

The latest data released by the Chinese customs indicates that the imports of U.S. oil in the first seven months of 2019 stood at 126,000 barrels per day, a 63 percent fall from the figure for the last year’s January-July period.

The cuts clearly reflect the impact of the trade war on Chinese oil imports from the U.S. even before Beijing imposed the new tariffs.

An opportunity for Iran

A few days after Beijing announced its decision on imposing new tariffs on U.S. crude, the country’s refineries started to look for ways to evade the consequences of the decision.

For instance, in late August, China Petroleum & Chemical Corp (Sinopec) asked the government to be exempted from the tariffs imposed on the U.S. oil.

According to the data from analytics companies Refinitiv and Kpler, Sinopec is expected to ship in eight million barrels of U.S. crude in September and October.

So, if Asia’s biggest refiner doesn’t manage to get a waiver on U.S. oil imports, it would definitely seek to replace the U.S. oil with crude from other sources, and Iran would be the most probable option.

Less expensive and more accessible Iranian oil makes it so attractive that it would be hard not to consider it at the time that the increase in the U.S. oil prices and the distance from the United States is making the American crude less and less attractive for the Asian country’s market.

Let’s not forget that, despite all the Trump’s attempts and threats, China hasn’t stopped its oil imports from Iran even after the waivers on imports of oil from Iran expires in May.

Now considering the recent escalations of the trade war between U.S. and China, it is more than likely that China would not only supply the needs of its refineries by increasing oil purchases from Iran, but also challenge one of Trump's most important foreign policies.

How Trump’s oil plans backfires on him

By Mohammad Ghaderi

TEHRAN - As expected, Donald Trump, the U.S. president didn’t extend sanctions exemptions to nine countries importing oil from Iran including India, China, Turkey, South Korea and Japan.

U.S. Secretary of State Mike Pompeo said the decision was intended to bring Iran's oil exports to zero and dial up economic pressure on the country.

The decision led to grave consequences from the very beginning: oil price jumped by 3% and the oil experts expressed strong doubt that Saudi Arabia and the United Arab Emirates can make up the difference in oil to ensure that global markets were not unsettled.

Here there are some point that are worth mentioning:

1.     The Washington’s recent blatant move to hamper Iran’s oil sales was based on Washington’s unilateral sanctions against Iran, rather than universal  multilateral sanctions; this will not only undermine the legality and credibility of the Trump’s decision but it will also restrain its real practical effects. In such an environment, the Islamic Republic of Iran will have more freedom to sell oil “indirectly” or “with using mediators” and this means that Trump, Pompeo and Bolton will not reach their goal that is to reduce Iran’s oil exports to zero.

2.    Washington’s move to end sanctions exemptions has led to objections from countries importing oil from Iran. Even countries such as Japan and South Korea that are Washington’s allies in East Asia have voiced their objections to this decision and insist to continue negotiating with the White House, so that importing oil from Iran will get back to its normal routine.

Countries such as Turkey and China have taken a stronger stand, saying that they will not follow Trump’s scandalous decision. They are, on one hand, worried about the oil market’s future conditions and on the other hand think that the White House decision is against the principle of making multilateral decisions in international arena.  

3.    The story doesn’t end here! Even though it seems that the conflict between Iran, U.S. and its two followers, Saudi Arabia and UAE, is only about oil but the conflict can expand to other fields as well. Washington, Riyadh and Abu Dhabi can’t possibly expect that after their activities against Iran in oil market, Iran’s response will be limited to “oil and energy sector”! Iran will make smart, calculated moves to ensure that U.S. and its allies will face the consequences of their activities in other fields. The Islamic Republic of Iran’s meaningful silence is just a preliminary stage when Iran prepares its serious and effective response for the ones who devised this oil scheme against it.

4.    The U.S. recent move against Iran by ending sanctions exemption is an official end to the Joint Comprehensive Plan of Action (JCPOA). After Trump unilaterally abandoned the JCPOA in May, the agreement lost most of its effects, but it was still in place; anyhow, now that the U.S. has imposed extensive sanctions against Iran’s oil, there is no reason for the Islam Republic to stay in this agreement.

On the other hand, the reaction of European Union to the U.S. recent decision shows that the European troika has no intention to maintain its nuclear agreement with Iran. In the meantime, Federica Mogherini, the president of the UN Foreign Affairs Council and the chairwoman of JCPOA Joint Commission, had the audacity to remain completely silent. This indicates that there has been a clandestine agreement between Washington and the European Union member states in regard to sanctions against Iran’s oil. Clearly, in this situation, Iran’s foreign ministry should officially stop JCPOA talks with the Europe and prepare to totally withdraw from JCPOA.  

5.    Considering the strong role of “mediators” in selling Iran’s oil in unofficial international markets, it seems that under current circumstances, approving the four bills to join the Financial Action Task Force (FATF) will only strengthen the West in using repressive measures and controlling tools to further prevent Iran from selling its oil.
Ending the sanctions exemptions to countries importing oil from Iran and designation of the Islamic Revolution Guard Corps as a terrorist organization by Trump administration leaves no room for anybody in Iran to defend the approval of FATF bills.

In this regard, Iran needs to take a strong stand and rule out the possibility of approving the UN Convention on Transnational Crime (Palermo bill) and Combatting the Financing of Terrorism (CFT), unless U.S. revise its two recent anti-Iran measures.

6.    Evidently, Trump has started a dangerous game against the Islamic Republic of Iran; a game that the White House started but its end will not be determined by Trump or his allies. Let’s remember that Washington has already made wrong predictions about reaching its goals with pressuring Iran’s economy. Following Washington’s withdrawal from JCPOA in May, Trump had claimed two critical time periods that would force Iran into economic collapse, predicting that they are likely to be in August and November. Washington high-ranking officials had also claimed that based on realistic and expert analysis that they have made, Iran will experience a major economic and political collapse by November 2018! It goes without doubt that once again Washington is doing another ill-fated attempt in starting an oil conflict with Iran. However, this failure will have far heavier costs for the U.S. compared to the last year.