Asia and the oil embargo
Avoiding serious disruptions in oil supplies and oil prices has been vital to human welfare since the oil era began after World War I. Indeed, there has been no dearth of real threats to and concerns about oil stability. Periodically there have been analyses coming up for the fall of oil centered Middle Eastern regimes, transnational terrorism against oil production facilities, oil as a weapon of mass destruction, or Organization of Petroleum Exporting Countries opportunism in oil pricing.
As a matter of fact, Asian trade witnesses high oil prices due to a two-facet situation: expectations of firm US economic growth and rising tensions between the West and Iran. Global trade goes through a chaotic scenario, as one crude oil producer, namely Iran, threatened to close the Strait of Hormuz – a chokepoint for onefifth of the world’s traded oil in strong protest to the decision of imposing an embargo on Iranian oil exports.
Oil has significant unique feature, making it harder to replace. It has also been one of the most politically sensitive commodities over the years. And now Asia’s four largest economies are finding out how difficult it is to balance political will with economic reality.
As the US and European Union move to cut Iran’s oil exports, there has been a significant impact on China, Japan, India and South Korea who went on to treading the fine line between international relations and national needs.
The difference in the approach of each Asian economy and their respective stands had a bearing not just on the oil market but also on the success of the embargoes and their impact on Asia. According to Amrita Sen of Barclays Capital, “It will really depend on individual countries and how they embrace the European and the US sanctions.”
In the particular case of China, on the economic front the country is far more reliant on imported oil than it has ever been in the past. Beijing is the largest importer of Iranian oil in Asia, accounting for almost 20 percent of all shipments from Tehran.
China’s rapid growth in recent years has seen a surge in demand for oil in the country. Goldman Sachs has forecast that it will become the world’s largest importer of oil within the next one-and-a-half years.
It currently imports almost 11 percent of its oil from Iran and analysts say, given the huge domestic demand; it is unlikely that China will reduce the amount.”we are getting to a point where China is saying enough is enough, we are not going to be a part of this,” says Tony Regan of the business consultancy firm Tri-zen.
India is also a major importer of Iranian oil in Asia and unlike China, it has far more cordial and closer political relations with the US.
However, Indian authorities followed China’s strategy over this matter. As Sen of Barclays Capital commented, “They are both rising superpowers and both are huge consumers of oil. For them price matters and since volumes are huge they don’t want to get involved in any such plans.” Historically, India and Iran have enjoyed good relations and are anticipated to continue doing business together, with an apparent intention of securing future supplies.
As far as Japan and South Korea are concerned, together both countries account for more than 20 percent of Iranian exports. Japan and South Korea presented their basic stance as to cooperate with the US over oil sanctions. But analysts pointed out that no major cut down is expected with only enough attempts shown to reduce oil imports from Iran, “They want to get waivers from the US so that Japanese and Korean companies can keep doing business with the Iranian Central Bank.”
The Asian economies face major economic realities at home, which may not permit them to break ties with the major oil exporter, Iran. Therefore, the political will of the US and EU needs to be aligned with a secure future for Asia.