Tugboats docking an oil tanker carrying crude oil imported from Iran at the Port of Zhoushan in China, in 2018.Credit…Imagine china, via Associated Press
How vulnerable is China if a wider Mideast war erupts?
China has strategic reserves and alternatives like electric cars, should oil imports ever be interrupted.
By Keith Bradsher, Reporting from Beijing
The big question for China is not whether Israel might strike at Iran’s oil infrastructure, but how Iran would respond, according to experts.
At least 20 percent of the world’s oil, and an even larger share of China’s oil imports, travels on ships past Iran’s shores through the Strait of Hormuz, which connects the Persian Gulf to the Arabian Sea. Most of OPEC’s five million barrels a day of excess capacity lies in oil fields that need to export through the Strait of Hormuz.
If Israel were to disable Iran’s ability to export oil, Iran’s rivals in the region could cash in by stepping up their exports to China. But Iran could stop them by using missiles to halt tanker traffic through the Strait of Hormuz.
Saudi Arabia has tried to bypass the Strait of Hormuz for part of its production by building pipelines to the Red Sea instead. But that waterway is now also dangerous because of attacks from Yemen by Houthi rebels backed by Iran.
For China, “it’s not so much what the impact of the strike is,” Mr. Collins said, “but what is the impact of Iran’s response?”
Michael Brown, a commodities specialist in the London office of Pepperstone, an Australian brokerage, added: “That’s the big concern from a global perspective.”
Iran’s oil infrastructure has been pushed to the center of the escalating conflict in the Middle East, but an Israeli strike on Iran’s energy facilities would also affect China directly.
On Thursday, President Biden said the United States was “in discussion” about the possibility that Israel might strike Iran’s vast oil sector.
His comments have already sent oil prices sharply higher in global markets, even though most countries shun Iran’s oil because of international sanctions on Tehran.
China is the exception. It buys more than 90 percent of Iran’s oil exports.
China relies on imports from around the world for almost three-quarters of its oil consumption. The loss of supply from Iran would have China turning to global markets for even more of its energy needs.
For Iran, exports to China are a vital source of funds. The country’s roughly $2 billion a month in oil sales to China represent at least 5 percent of Iran’s entire economic output. They bankroll the Iranian government and provide the cash that Iran needs to pay for its own imports.
Iran exports nearly half of its oil production and uses the rest for its own domestic needs. The sliver of Iran’s oil exports that China does not purchase is shipped mainly as economic assistance or barter to two nearly bankrupt allies, Syria and Venezuela, that have little money to pay for fuel.
Why does China buy so much oil from Iran?
Oil from Iran is cheap, and sold at sizable discounts to world prices because sanctions have left so few buyers. Oil from Iran sells for even less than oil from Russia. While China, India and some developing countries continue to buy Russian oil despite Russia’s invasion of Ukraine, practically no one except China is willing to purchase Iranian oil.
China needs to buy a lot of energy to keep its economy going. It is the world’s biggest oil importer and the second-largest oil consumer behind the United States.
Yet China has done much to limit its overall reliance on oil. While oil accounts for 40 percent of energy used in the United States, it is only about 20 percent of China’s overall energy supply, said Gabriel Collins, a China energy researcher at Rice University’s Baker Institute for Public Policy in Houston.
Slightly more than half the cars sold in China now are battery electric or plug-in gasoline-electric hybrid cars. China generates the energy to power those cars mainly by burning coal — China is the world’s dominant producer and consumer of coal — and with solar panels and wind turbines. Much of China’s oil imports is used for the country’s chemical industry, which is the world’s largest, or to refine the diesel that powers trucks.
How reliant is China on Iranian oil?
An estimated 15 percent of China’s oil imports comes from Iran, according to Andon Pavlov, senior refining and oil products analyst at Kpler, a firm in Vienna that specializes in tracking Iran’s oil shipments. Russia is China’s single largest supplier of oil, but China also buys a lot from Iraq, Kuwait, Saudi Arabia, the United Arab Emirates and Angola.
Members of the Organization of Petroleum-Exporting Countriesproduce as much as five million barrels per day of oil less than their full capacity. The group, a cartel of oil producers led by Saudi Arabia, churns out less than it could, so as to keep prices fairly high. If China were unable to buy its usual amount from Iran — about one million to 1.5 million barrels per day — it might find Iran’s neighbors happy to supply it instead.
As a result, the damage to China’s economy from even a long-term interruption of oil from Iran would be minimal, provided that other countries stepped up their shipments, oil experts said.
“Any interruptions to Iranian oil exports would probably be quickly replaced with increases in China’s other sources of supply,” said Roger Fouquet, an energy specialist at the National University of Singapore.
Does China have reserves in case of an interruption in imports?
China has been expanding its oil reserves over the past several years. As home building has slowed with the country’s housing market crash, many construction workers have been redeployed to making oil storage tanks.
Analysts have long guessed that China is swiftly increasing reserves in preparation for a possible conflict with Taiwan, which could result in a disruption of all of mainland China’s seaborne imports. But China’s reserves, now estimated to equal more than three months of the country’s entire oil imports and two years of China’s imports from Iran, would provide a cushion in case of an interruption of Iran’s supplies.
“If it’s 30 days of madness, China would glide over that like it’s a speed bump,” said Alex Turnbull, a commodities analyst in Singapore.
How vulnerable is China if a wider Mideast war erupts?
The big question for China is not whether Israel might strike at Iran’s oil infrastructure, but how Iran would respond, according to experts.
At least 20 percent of the world’s oil, and an even larger share of China’s oil imports, travels on ships past Iran’s shores through the Strait of Hormuz, which connects the Persian Gulf to the Arabian Sea. Most of OPEC’s five million barrels a day of excess capacity lies in oil fields that need to export through the Strait of Hormuz.
If Israel were to disable Iran’s ability to export oil, Iran’s rivals in the region could cash in by stepping up their exports to China. But Iran could stop them by using missiles to halt tanker traffic through the Strait of Hormuz.
Saudi Arabia has tried to bypass the Strait of Hormuz for part of its production by building pipelines to the Red Sea instead. But that waterway is now also dangerous because of attacks from Yemen by Houthi rebels backed by Iran.
For China, “it’s not so much what the impact of the strike is,” Mr. Collins said, “but what is the impact of Iran’s response?”
Michael Brown, a commodities specialist in the London office of Pepperstone, an Australian brokerage, added: “That’s the big concern from a global perspective.”
NY Times
Leave a Reply
You must be logged in to post a comment.