US President Donald Trump’s decision to pull the US out of the Iran nuclear deal has rattled the global crude oil market. If Iran cuts oil production, who will fill in the net oil import gap of China?
Beijing must have a plan to respond to fluctuations in the global crude oil market. China is currently the largest importer of Iranian oil. Trump’s decision to reinstate financial sanctions on Iran makes China one of the first to bear the brunt of this painful move.
Since Trump threatened to rip up the deal, predictions that a US withdrawal would exacerbate Middle East conflicts have emerged. China is the world’s largest net oil importer, and a considerable part of its crude oil comes from countries in the Middle East. China’s Middle East energy footprint has been expanding in recent years, but now the country has to speed up its steps to diversify its trade partners.
Russia is an appropriate option. Since the US imposed economic sanctions against Russian companies and business elites, Russia has begun to pivot to the East. China has certainly been at the center of Russia’s efforts to increase its presence in Asia’s crude oil market.
A second China-Russia oil pipeline began operation in January, doubling China’s annual imports of Russian crude oil to 30 million tons through pipelines.
With the US withdrawal from the Iran nuclear deal, closer engagement between China and Russia is natural. Their cooperation is based on common economic interests rather than ideology and will continue to expand.
China can also seek to increase oil imports from West Africa. Nigeria’s economy is getting out of recession but recovery in the largest oil producer in Africa is still fragile. The country needs to modernize and diversify its productive structure, and China has advantages in infrastructure construction and the manufacturing industry. China can enhance comprehensive cooperation with Nigeria, offering necessary assistance in return for oil shipments.
The possible supply cuts from the Middle East pave the way for other nations to gain a greater foothold in the Asian market, but this situation might also heat up the competition among Asian oil importers. For example, in 2017 Iran was the third-largest oil supplier to India.
China needs to enhance coordination and contacts with India and other Asian oil importers to eliminate the negative effects of the US withdrawal from the Iran nuclear deal.