The United States and China are ratcheting up trade war tensions between the two economic superpowers. An analyst with JTD Energy said some Chinese refiners may buy crude from Iran and are “not going to be swayed or intimidated by US sanctions”.
Chinese expected to retaliate in trade war with US
Asian oil refiners are in a race to secure crude supplies as the trade war between the United States and China escalates. But in the midst of the intensifying dispute, some Asian countries see the tit-for-tat trade spat as an opportunity to buy US crude at cheaper prices.
The Washington-Beijing trade dispute comes at a time when the US is calling for its allies to abandon Iranian crude imports. In May, the Trump administration walked away from the Iran sanction relief deal and re-imposed sanctions against Tehran, which will kick in beginning in November.
On Friday, the US slapped tariffs on $34 billion in Chinese goods. In return, China has threatened to put a 25 per cent duty on US crude.
Chinese state media slammed President Trump, calling his government a “gang of hoodlums”, and officials vowed to retaliate against the US tariffs.
US crude exports to China are prime picking for Beijing, with the US exporting 400,000 barrels per day (b/d) in July.
This amounts to only 5 per cent of China’s overall crude imports, but is $1 billion of sales for the US oil industry. According to Reuters, that figure is certain to decline.
“The Chinese have to do the tit-for-tat, they have to retaliate,” John Driscoll, director of consultancy JTD Energy told Reuters. He added that reducing US crude imports is a means “of retaliating (against) the US in a very substantial way”.
An executive from China’s Dongming Petrochemical Group, a teapot refiner in the Shandong province, told Reuters that his refinery has already cancelled US crude orders.
“We expect the Chinese government to impose tariffs on (US) crude,” the executive said. He requested anonymity as he was not authorized to speak to media. “We will switch to either Middle East or West African supplies,” he added.
Driscoll says China may even go so far as to replace US crude with Iranian exports. “They (Chinese importers) are not going to be intimidated, or swayed by US sanctions,” he told Reuters.
The Japanese oil industry has yet to respond to Friday’s actions by Trump. The Petroleum Association of Japan had previously warned its refiners that they will have to halt loading Iranian crude beginning in October if the US does not give Japan an exemption on the sanctions.
Despite the turmoil, South Korea sees an opportunity. While Seoul has stopped buying Iranian crude, it sees Chinese tariffs on US crude as a chance to scoop up American oil at lower costs.
“If China retaliates with tariffs on US crude, that could improve South Korea’s terms of buying US crude…because the US would need a market to sell to,” Lee Dal-seok at the Korea Energy Economic Institute told Reuters.
JTD Energy’s Driscoll says US crude sellers were “already discounting” their oil.