SEATTLE (Oil Monster): The Iran war initiated by U.S. President Donald Trump has continued for over six months, driving international oil prices to around $100 per barrel. However, the initial prediction of a "doubling of oil prices" has yet to materialize. Analysis suggests that this is not due to increased production by Saudi Arabia or the U.S., but rather because of China.
As the world’s largest crude oil importer, China has reduced its imports by releasing massive oil reserves, thereby easing demand pressure in the global oil market. The Associated Press (AP) reported, “President Trump, who must worry about high oil prices ahead of midterm elections, has found himself in a position where he should thank Chinese President Xi Jinping for avoiding the worst oil price surge.”
1.4 billion barrels of reserves as a buffer against oil price surges
Over the past decade, China has built the world’s largest crude oil storage facilities under the pretext of energy security. According to the U.S. Energy Information Administration (EIA), China’s combined strategic and commercial oil reserves were estimated at approximately 1.4 billion barrels at the end of last year. This is about five times larger than the U.S. government’s Strategic Petroleum Reserve, which currently holds around 285 million barrels.
These reserves proved effective when the U.S. and Israel attacked Iran in February, effectively blocking passage through the Strait of Hormuz. By tapping into its reserves, China reduced its crude oil imports to their lowest level in a decade. The decreased imports by the world’s second-largest oil-consuming country allowed other consuming nations like the U.S. and Europe to secure more oil, thereby lowering upward pressure on prices.
According to Reuters, China’s seaborne crude oil imports fell by up to 4 million barrels per day compared to pre-war levels. As the world’s largest oil importer drastically reduced its purchases, competition among other consuming countries to secure oil eased, and upward pressure on prices was mitigated. China addressed the reduced imports by scaling back refinery operations, cutting petroleum product exports, and filling the gap with its oil reserves.
August’s supply-demand situation is a prime example. Based on an analysis by Reuters using Chinese official statistics, the country’s refiners processed an average of 13.91 million barrels of crude oil per day, but supply from imports and domestic production totaled only 13.27 million barrels. The shortfall of around 640,000 barrels per day was covered by reserves. This marked the third time in four months that China had drawn on its reserves.
The expansion of electric vehicle adoption has also suppressed oil demand in China. Electric and plug-in hybrid vehicles account for more than half of new car sales in the country. Increased solar, wind, and nuclear power generation has also helped reduce reliance on oil. Rosemary Kellison, director of the Middle East Program at the U.S. think tank Defense Priorities, told AP, “The U.S. is hitching a free ride on China in a strange way.”
Cutting off Iran’s funds while becoming Trump’s ‘savior’
China’s role has another paradox. It is the largest buyer of Iranian oil, which is under U.S. sanctions. About 90% of Iran’s oil exports are estimated to flow to China. The payments for this oil are a lifeline for Iran, enabling it to sustain its economy and military operations amid the war with the U.S.
The Trump administration has urged China to reduce its imports of Iranian oil and pressure Iran to reopen the Strait of Hormuz. However, China has not complied, criticizing the U.S. attack. While maintaining Iran’s financial lifeline and indirectly prolonging the war, China has also mitigated the oil price shock caused by the conflict by reducing its own imports and consumption.
Despite disagreements between the U.S. and China over the Iran issue, Trump has refrained from publicly criticizing China. AP reported that Trump, seeking to maintain an unstable trade truce with China, has been cautious about making public statements regarding Sino-Iranian relations. When asked about reports that a Chinese institution provided satellite images of U.S. military bases to Iran, Trump responded, “If they say they’re monitoring us, that’s correct. We also monitor them.”
Courtesy: www.chosun.com
