War in Iran Scares Oil Investors: Will Communist Beijing Be the Ultimate Loser?

With oil markets entering a period of turmoil following the Israeli-American war and the Islamic Republic’s attacks on its oil- and gas-producing neighbors, Communist China will likely emerge as the biggest future loser in the energy game. Energy investors dumped assets when world-wide markets opened on the first day of trading following the war’s start and oil prices jumped to nearly $80 a barrel. The news seemed bleak: Traffic at Hormuz Strait all-but halted following threats from Iran. Qatar, the Gulf’s largest exporter of liquefied natural gas, was hit with Iranian drones and stopped production. Saudi Arabia announced that its oil giant, Aramco, also halted operations in its largest oil refinery at Ras Tanura, which produces 550,000 barrels a day. The mullahs seem to calculate that by attacking neighbors it could raise global pressures on President Trump to end the war quickly. They might have miscalculated. America, now the world’s top oil producer and a net exporter, can withstand world market turmoil much better than it could in previous decades.“Fortunately, this is not 1979 anymore,” the president of the U.S. Oil and Gas Association, Tim Stewart, tells the Sun. America, he notes, produces over 13 million barrels a day domestically. Up to 60 percent of exports come chiefly from Canada, and now increasingly from Venezuela. “We have for the first time reduced vulnerability to Middle East disruptions compared to Europe or Asia,” he says. Communist China: Trouble AheadMost Gulf oil goes to Europe and East Asia. Iranian oil, which is under heavy American embargo, is mostly exported to Communist China, and to a lesser degree to India, Malaysia, and other countries.Some 20 percent of Beijing’s energy imports come from Iran, and sanctions force the Islamic Republic to sell at discount rates. “For now China is the number one buyer of Iranian crude oil, and they have got to be nervous” at Beijing, an adviser on illicit oil shipping for United Against Nuclear Iran, Charlie Brown, tells the Sun. Cutting Iran’s oil smuggling to China could also have ramifications beyond energy markets. “Oil was the lifeblood of the Iran-Venezuela axis, with China purchasing the majority of both Iranian and Venezuelan oil,” the executive director at the Council for a Secure America, Jennifer Sutton, tells the Sun. “These oil sales aided and abetted terror around the world.” Energy Markets: How Long Will the War Last?Following a prolonged surplus in oil supplies, during which prices sank to between $50 and $60 a barrel, energy watchers now expect them to rise to up to $80 or $90. On paper, that sounds like a huge leap, yet the latter prices were typical three and four years ago. Also, oil speculators factored in the coming war for weeks, which already raised market rates.A lengthy Iran operation might yet create a significant energy crunch, forcing America’s “Epic Fury” and Israel’s “Lion’s Roar” to be cut short before all war objectives have been achieved. Will it?“We’re already substantially ahead of our time projections,” President Trump said at the beginning of the week. The war, he added, was projected to last four or five weeks, but he is willing to extend it if necessary. Some said that he would want to do a quick hit and then get bored with it, the president said — but “I don’t get bored.”The Hormuz Strait: A Critical PassageUp to 30 percent of the global oil is shipped through the narrow waterway connecting the Persian Gulf and the Gulf of Oman. The Islamic Republic is saying that it already shut down the Hormuz Strait. As the Houthis showed by shutting down most shipping in the Red Sea for two years, mere threats to ships can be enough.As insurers deny coverage, shipping companies stop sailing dangerous routes. Bypassing the Red Sea at higher costs was profitable for the shippers, but raised consumer prices. Will a slow down in Hormuz traffic similarly hurt oil and gas producers, and raise prices at the pump?“Countries are already prepared for even the most extreme case, a total shut down in the strait,” a lecturer on energy and geopolitics at Bar Ilan University, Elai Rettig, tells the Sun. Following last June’s 12-day war, he says, “China, for one, started augmenting its reserves, and now has enough oil to last four or five months.” Meanwhile Iraq and Kuwait have no alternative to Hormuz, Mr. Rettig says, but others can at least partially compensate for the loss. The Saudi East-West Pipeline from Abquaiq field to the Red Sea can transfer 7 million barrels a day. That is down from the Saudi current export of 11 million barrels, but still significant. The United Arab Emirates also has an oil pipeline that bypasses Hormuz to the Indian Ocean and can transfer more than half of its current exporting capacity. Jordan, Egypt: Incidental Victims As barrages of missiles hit Israel, the country shut down production in its Mediterranean-based gas fields, Karish and Leviathan. Israeli markets have enough reserves for its domestic energy consumption. The Tel Aviv stock market surged by 4.7 percent on Monday, closing at a record high. Neighbors that import Israeli gas, though, are expected to suffer . “Jordan is completely dependent on Israel for its electricity,” the CEO of the Israeli consulting group Echo Energy, Amit Mor, tells the Sun. When gas production was halted in June, he advised Prime Minister Netanyahu to export some of Israel’s gas reserves to its neighbor to prevent an uprising against the King as Jordan went dark. Egypt, he says, is slightly less dependent, yet it too will be hard hit from a long term halt of imports.Venezuela: A PrecedentPrior to the January 3 capture of Nicolas Maduro, most of Venezuela’s heavy crude was exported at discount to Communist China, Cuba, and other Chavista allies. Now America is taking in some of the oil, while proceeds are also used to enrich Venezuela’s long-depressed local economy. “Will Trump eventually do in Iran what he did in Venezuela?” Mr. Brown of UANI asks. Once the war ends, “will he help Iran’s oil market, manage it from the U.S., and sell it to friendly countries, and then make sure the money goes back to the people?”

War in Iran Scares Oil Investors: Will Communist Beijing Be the Ultimate Loser?

War in Iran Scares Oil Investors: Will Communist Beijing Be the Ultimate Loser?

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