RPT: ANALYSIS - China Unlikely To Rely On Iranian Oil For Energy Security

MOSCOW (UrduPoint News / Sputnik - 23rd July, 2019) Despite reports of millions of barrels of Iranian crude oil waiting to be loaded into storage tanks at Chinese ports, China is unlikely to rely heavily on this oil to safeguard its energy security, experts told Sputnik.

About ten large crude oil carriers and two smaller tankers owned by the state-run National Iranian Oil Company, with a combined capacity of 20 million barrels, are either on their way to China or idling off Chinese coasts, Bloomberg news reported on Monday.

After US President Donald Trump's administration ended waivers on May 2 that allowed some countries, including China, to continue importing Iranian oil, Chinese Foreign Ministry spokesman Lu Kang said Beijing would not to allow the United States to disrupt its "normal economic and trade relations" with Iran.

However, Chinese oil market analysts pointed out that China was unlikely to rely heavily on Iranian crude oil as a critical component to safeguard its energy security since oil imports from the Islamic republic could be only viewed as "icing on the cake."

"Chinese state-owned oil companies have their predetermined procurement plans. The Iranian oil allegedly idling at our door steps could only be something like 'icing on the cake.' Even if the Iranian oil can't be imported in the end, there wouldn't be a problem at all. It won't affect China's energy security, especially when it comes to crude oil supply," Li Li, an oil market analyst with Shanghai-based commodities researcher ICIS-China, told Sputnik.

Chinese companies have been very cautious when handling oil imports from Iran, Li added.

"They [Chinese oil companies] are still struggling to figure out how to import the Iranian oil, which could have some advantages in terms of prices. But as a business entity, those companies have to take the capital markets into consideration. They are mostly publicly listed companies. It wouldn't be smart for them to openly violate US restrictions. They need to find smarter ways to maximize their interests," she said.

After overtaking the United States as the world's largest crude oil importer in 2017, China has seen its oil imports grow rapidly.

According to the latest official figures, China imported 245 million tonnes of crude oil in the first half of this year, up 8.8 percent from a year ago. Meanwhile, the country's crude oil in June imports stood at 39.58 million tonnes, up 15.2 percent year-on-year.

As Beijing seeks to diversify its crude oil supply to better protect the nation's energy security, it would not be hard for China to find alternative sources in case it faces trouble importing oil from Iran, other Chinese oil market analysts suggested.

"Twenty million barrels of crude oil is less than 3 million tonnes. This amount would only take a small percentage in China's overall oil imports. It's less than 10 percent of China's total monthly oil imports. Even if oil supplies from Iran halted, there are many other channels for China to fill the void," Zhu Chunkai, an oil market analyst at Shandong-based industry consultancy Less Better, told Sputnik.

Twenty million barrels of crude oil equals about 2.72 million tonnes of oil, which is about 6.9 percent of China's total oil imports in June.

The Shandong-based analyst warned that a bigger threat to China's energy security could come from the disruption of crude oil shipping through the Strait of Hormuz, where Iran is facing off against the United States and the United Kingdom.

"If the Strait of Hormuz has problems, it'll cause big troubles. Although China started to diversify its crude oil supply to avoid heavily reliance on shipping through the sea, over half of the nation's oil imports still come from middle Eastern countries, which have to go through the Strait of Hormuz. Disruptions in the Strait of Hormuz will deal a serious blow to all the major crude oil consumers in the world, including the United States," he said.

Amid rising tensions between Washington and Tehran, the Trump administration claimed to have shot down an Iranian drone last week, in retaliation to Iran's Islamic Revolutionary Guard Corps (IRGC) shooting down a US drone in June.

After the UK Royal Marines detaining the Iran-operated Grace 1 oil tanker in Gibraltar's waters on July 4, Iran's IRGC seized a UK oil tanker in the Strait of Hormuz last week.

Zhu pointed out that China's vulnerability to disruptions in oil shipping lied in its limited strategic oil reserve capacity.

"China's strategic oil reserve only has a capacity of sustaining oil supplies for a maximum of 75 days. That's only a bit more than two months. There's simply no additional storage capacity to hold more crude oil," he said.

Despite concerns about potential crisis in the Strait of Hormuz, Chinese oil companies remain prudent when it comes to hoarding more crude oil, Li, the Shanghai-based analyst, added.

"There has been no sign of additional speculative purchase of crude oil or boosting the nation's strategic reserve. We haven't seen an urge [among Chinese oil companies] of trying to hoard more crude oil," she said.

The analyst believed there would not be any fundamental change in global oil prices in the long term since the market remained overly saturated with excessive supply.