A halt in Iranian oil to Asia . . .
With tensions rising between the U.S. and Iran, the issue of oil is once again bubbling to the surface in Asia. With Tehran’s announcement this week that it wants to restrict some of its commitments under the Joint Comprehensive Plan of Action (a.k.a. the ‘Iran nuclear deal’) and the Trump administration’s refusal to extend waivers to China, India, Japan, and South Korea for Iranian oil, Asia will see an increase in energy insecurity for the near to medium terms.
Searching for substitute suppliers . . .
Japan, South Korea, and India must now suspend all imports of Iranian oil and gas products or face the possibility of secondary sanctions from the U.S. None of these countries will find a ready, cost-free alternative to Iranian oil. South Korea has been trying to find a substitute supplier for Iranian condensate for the past 12 months, but has been unable to secure an economically viable alternative. Japan has seemingly accepted the fact it will have to pay more for its energy imports. India, similarly, is looking to Saudi Arabia and the United Arab Emirates – both states that will benefit hugely from the tightened sanctions – as proxy providers for Iran.
China’s response remains uncertain. China may reduce its economic co-operation with Iran as part of a future China-U.S. trade deal. There is an equal chance, however, that Beijing will capitalize on Iran’s isolation to expand its economic footprint in the country.
Never let a good crisis go to waste . . .
Importantly, both China and India are looking to develop payment systems that use the RMB and rupee, respectively, to avoid U.S. sanctions. Such moves suggest a longer-term desire among Asian states to decrease dependence on a U.S. dollar-backed system and to establish alternative ‘Asian’ financial institutions. Ironically, U.S. determination to use sanctions to shape Asian states’ industrial and foreign policies is undermining is dominant position in Asian finance.
- The Brookings Institution: Trump tightens sanctions on Iran’s oil exports—how India will respond
- The Japan Times: Japan hopes to mediate between U.S. and Iran to rescue 2015 nuclear deal
- Reuters: No stone unturned: South Korea to sweep world for Iran oil replacement