China May Rethink Geopolitical Strategy As Saudi Oil Attacks Exposed Supply Vulnerability

(@FahadShabbir)

China May Rethink Geopolitical Strategy as Saudi Oil Attacks Exposed Supply Vulnerability

China could start to rethink its policies on a range of geopolitical issues, including ongoing trade talks with the United States and its stances on political crises involving Iran and Venezuela, after drone attacks in Saudi Arabia exposed crude oil supply vulnerabilities that Beijing could face amid growing instabilities in the Middle East, experts told Sputnik

MOSCOW (UrduPoint News / Sputnik - 19th September, 2019) China could start to rethink its policies on a range of geopolitical issues, including ongoing trade talks with the United States and its stances on political crises involving Iran and Venezuela, after drone attacks in Saudi Arabia exposed crude oil supply vulnerabilities that Beijing could face amid growing instabilities in the middle East, experts told Sputnik.

Coordinated attacks using drones and missiles on Saturday paralyzed almost 50 percent of Saudi Arabia's crude oil production, sending the international benchmark Brent crude to a historic jump of 19.5 percent before settling at $69.02 a barrel on Monday.

During a press conference on Tuesday, Saudi Arabia's Energy Minister Prince Abdulaziz bin Salman said fifty percent of the crude production disrupted by the attack had been restored in the previous two days and production capacity could be restored to 11 million barrels of crude per day (bpd) by the end of September and 12 million bpd by the end of November. The Saudi official added that the kingdom would honor all of its commitments to customers this month by drawing from its crude oil reserves.

As the world's largest crude oil importer, China's appetite for crude continued to grow steadily over the years. According to the latest official figures from Chinese customs, the nation's crude oil imports in the first eight months expanded to 327.8 million tonnes, up 9.6 percent from the same period of last year.

Despite assurances from Saudi Arabia about honoring supply contracts with Chinese oil companies, Chinese leaders in Beijing may begin to rethink their strategies on a range of global geopolitical issues, because of the oil supply vulnerabilities exposed in the recent Saudi oil attacks, industry analysts told Sputnik.

"In fact, China has experienced a lot of difficulties in crude oil supplies this year, because of US sanctions on Iran and Venezuela. While China still could handle such pressure, it became a rather difficult situation for the nation's crude oil supply. If oil supplies from Saudi Arabia also face disruptions, China can't really withstand such blows. This year, global crude oil supply has experienced the most impact from geopolitics than ever before, ranging from sanctions to regional conflicts. I believe Chinese leaders would have to pay attention to crude oil supply when handling geopolitical issues such as the trade talks with the United States and their positions on crisis related to Iran and Venezuela," Li Li, research director on oil and gas markets with commodities consultancy ICIS, told Sputnik.

Li added that the recent oil supply crisis in Saudi Arabia bought a fresh sense of urgency for China, which had always viewed Riyadh as the most reliable supplier when it faced supply shortages from other countries.

The analyst explained that China did not have to worry too much about crude oil supply when dealing with such geopolitical issues earlier this year, when the overall global oil market appeared to be saturated and favored the buyers.

"China has always taken its energy security into consideration when dealing with crisis related to Iran or Venezuela.

Even during the trade talks with the United States, we also knew that Washington wanted us to buy more US crude oil. But crude oil supply wasn't really a pressing issue, because everyone felt the global oil trade was in a 'buyer's market,' especially after the shale oil revolution in the United States. As a major buyer, China didn't have to worry at all," she said.

Li suggested that Beijing could adjust its defiant stance on issues related to Iran or Venezuela and may need to offer some concessions in trade talks with the United States, in exchange for additional oil supply options to better handle potential disruptions in the Middle East.

Nevertheless, other Chinese industry analysts pointed out that US crude oil may not be appealing enough to convince Beijing to offer more concessions in trade talks.

"The US crude oil has no competitive advantage, because it doesn't really match the grade of crude oil preferred by Chinese refineries. If it's negotiations between China and Saudi Arabia, Beijing may need to offer more concessions because of crude oil supply. But China doesn't rely on the United States for crude oil," Zhu Guangming, an oil market analyst at Shandong-based industry researcher SCI99, told Sputnik.

Zhu argued that the Chinese market could be crucial to US crude producers, if they want to become a dominant player in the global oil market.

"The question should be whether the United States is willing to offer some concessions in order to take a larger share in China's booming appetite for crude oil. If US crude wants to make a breakthrough in the global oil market, it has to be able to tap the Chinese market. That's because potential growth in global crude demand would mostly come from China or India in the near future, as crude oil demand from developed countries have been relatively stable," he said.

According to statistics from Singapore-based consultancy Refinitiv Oil Research, Saudi Arabia has overtaken Russia since the beginning of this year to become China's largest crude oil supplier with a market share of about 18 percent.

Industry analysts explained that China boosted imports from Saudi Arabia because it could offer the heavy crude oil Beijing needs to substitute reduced imports from Iran and Venezuela as a result of US sanctions.

"For the Chinese at the moment, the main concern is on the medium to heavy grade [crude oil], such as the heavy grade from Venezuela and Iran. We're seeing that, even under US sanctions, the Chinese are still buying from those two countries, either directly or with covers. You can see how the Chinese rely on the heavy grade. That's also why China boosted imports from Saudi Arabia, which could offer similar heavy grade," Emma Li, senior crude analyst at Refinitiv Oil Research, told Sputnik.

The analyst added that almost 80 percent of China's refineries were configured to process medium to heavy grade crude oil and those facilities could not be converted to handle light grade crude oil overnight.