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Asian refiners hunt for oil supplies amid trade war, looming Iran sanctions

Seoul has halted all orders of Iranian oil, according to sources, even as it braces from spillover effects from the US-China tit-for-tat on trade

Reuters  |  Singapore 

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Asian refiners are racing to secure crude supplies in anticipation of an escalating between the and China, and as plans tough sanctions against aimed at shutting the country out of markets.

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

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

"As South Korea's economy heavily relies on trade, it won't be good for if the global economic slowdown happens because of a trade dispute between US and China," said Lee Dal-seok, at the (KEEI).

In China, slammed US President Donald Trump's government as a "gang of hoodlums", with 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 (bpd) in July.

Although just 5 per cent 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 duty be implemented.

US is not on the list of 545 products the has said it would immediately retaliate with in response to American duties.

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

While no date has been set, industry participants expect the tariff to be levied.

"The Chinese have to do the tit-for-tat, 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".

OPPORTUNITY KNOCKS ELSEWHERE?

In an early sign of future times, an from China's Dongming Petrochemical Group, an independent refiner from province, said his refinery had already cancelled US crude orders.

"We expect the to impose tariffs on (US) crude," the said, declining to be named as he was not authorised to speak to media. "We will switch to either or West African supplies," he said.

JTD Energy's Driscoll said may even replace American oil with crude from "They (Chinese importers) are not going to be intimidated, or swayed by US sanctions," he said.

In Japan, Asia's third-biggest importer of crude, the has yet to react publicly to Friday's The previously warned refiners will have to stop loading Iranian from October if doesn't win an exemption on US-sanctions.

Amid the turmoil, some in the region spot opportunity.

"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," said the KEEI's Lee.

Highlighting that issue, JTD Energy's Driscoll said US were "already discounting" their crude.

First Published: Fri, July 06 2018. 15:10 IST
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