Top Sto­ries

Asia and the oil em­bargo

Enterprise - - Contents -

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.

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