As the world collectively contemplates over the ramifications of Washington’s sanctions on Iran, China has made its line of action pretty clear. US sanctions over Iran connote that there would be a void in the oil market and hence the oil price around the globe would increase – especially for those countries who are complying with the US Congress’ decision. Meanwhile, with a lack of purchasers for its oil Tehran is in a veritable quagmire, and hence its negotiating powers are significantly minimised. Now, what China is vying to do is get Iranian oil at a significantly cheaper rate, since the buyers have been reduced after the sanctions. China has expounded its intention of playing hard ball with Iran over oil rates by cutting its January imports in half and in turn cutting the flow of 10 per cent of Iranian oil. With China being the world’s second largest crude oil importer and Iran the fifth ranked exporter, such a prodigious drop in oil volumes would result in a major political convulsion – especially since fresh sanctions over Iran are also on the horizon.
Now with the numbers of buyers plummeting down, Iran has a choice to make: either it could sell more oil to its topmost buyer China or it would have to slash the volume of exports. ‘Choice’ is probably a misnomer for the blatantly obvious course of action that Iran would have to undertake. When Chinese negotiations with Iran over oil sales for 2012 began, the former was aware of the fact that it was the latter’s last resort and hence the Iranians stance of warding off price changes was considerably weak. And hence when Iran refused to budge, China riposted by cutting its January purchases by around 285,000 barrels per day – which amounts to over fifty per cent of 550,000 bpd that China buys annually and over 10 per cent of 2.4 million bpd of Iranian exports. With Iran dependent on oil for nearly half of the government’s revenue, it cannot afford to have such a huge dip in exports and hence it is only a matter of time before Iran complies with Chinese demands.
Another sting in the tale has been courtesy an upsurge in Saudi crude exports to China, which has further diminished any iota of bargaining power that Iran might have had. When juxtaposed with the same time last year, Saudi crude exports to China have jumped by nearly 32 per cent. The new exports total 4.81 million barrels per day which is nearly half of Saudi Arabia’s production of oil. If China has been opportunistic in its maneuver over price bargaining the same could also be said of the Saudi Kingdom. Saudi Arabia has upped the ante in oil production as it endeavours to capitalise on the sanctions on Iran. With Iranian oil evaporating from the global market, the Saudi oil has been touted to emerge as one of the major players in the oil game. US and Saudi Arabia have already had talks over a potential rise the latter’s oil production by exploring its spare production potential.
Hence as things stand, and as China sits with Iran on the negotiation table again, there would only be one speaker and the Iran would have to acquiesce to whatever Beijing iterates. Nevertheless, even though China has alternatives and has made its innermost intentions conspicuous, the Chinese hierarchy would not want to give up on Iranian crude imports as it is bound to damage the relationship between the two nations unnecessarily.
The writer is Sub-Editor,
Profit. He can be reached at khulduneshahid@gmail.com