Asia’s oil refiners rush to deal with looming Iran sanctions

Asian oil refiners are racing to secure crude supplies in anticipation of an escalating trade row between the US and China, and as Washington plans tough sanctions against Iran that aim to shut the country out of oil markets.

As part of a wave of retaliation for Friday’s US tariffs, China has threatened a 25 percent duty on imports of US crude. Meanwhile, Washington’s new sanctions against Tehran are due to kick in from November.

That double whammy is prompting Asian refiners to move swiftly, with South Korea leading the way. Under pressure from Washington, Seoul has halted all orders of Iranian oil, according to sources, even as it braces for spillover effects from the US-China tit-for-tat on trade.

“As South Korea’s economy heavily relies on trade, it won’t be good for South Korea if the global economy slows down because of the trade dispute between the US and China,” said Lee Dal-seok, senior researcher at the Korea Energy Economic Institute.

In China, State media slammed US President Donald Trump’s government, branding it a “gang of hoodlums,” with some officials vowing retaliation.

Standing in the line of fire are US crude supplies to China, which have surged from virtually zero before 2017 to 400,000 barrels per day this month. Although just 5 percent of China’s overall crude imports, these supplies are worth $1 billion a month at current prices – a figure that seems certain to fall should a higher duty be implemented.

US crude oil is not on the list of 545 products the Chinese government has announced it would immediately retaliate with, in response to American duties.

However, crude oil is listed as a US product that will receive an import tariff at an unspecified later date.

“The Chinese have to do the tit-fortat, they have to retaliate,” said John Driscoll, director of consultancy JTD Energy, adding that cutting US crude imports was a means “of retaliating [against] the US in a very substantial way.”

In Japan, Asia’s third-biggest importer of crude, the oil industry has yet to react publicly to Friday’s news. The Petroleum Association of Japan previously warned that refiners will have to stop loading Iranian crude oil from October if Tokyo doesn’t win an exemption from US sanctions on Iran.