China stops short of adding imported US crude oil to the tariff list, but will the US use tariffs as a lever to reduce Iran to zero crude oil exports?
I did not pick the simmering conflict between Iran and the USA and its allies in the Middle East as one of my five predictions for 2019, because it was such an obvious pressure point in the tanker trades that it did not need to be stated.
The ongoing saga between Iran and the US has been well documented in Tanker Shipping & Trade. Below, is a 10-point timeline from 2008 to the present day, ending with the news that Saudi Arabian tankers were 'sabotaged' this past weekend in the Strait of Hormuz.
Reading through the timeline reveals how cautious the US has been in the past when dealing with Iran, and how that foreign policy has evolved under the Trump administration.
Today's crude oil trade is very different from 2008: the US has become self-sufficient, then an exporter of crude oil. It no longer needs Iranian oil and seems to want to economically cripple Iran to prevent it from building nuclear weapons.
At the same time, the US has engaged in a trade war with China and just this week imposed tariffs on US$200Bn of Chinese goods ranging from hammers to bicycles (over 5,000 items in total). The US tariffs on Chinese goods range from 20% to 25%.
As is required in these global games, in retaliation China has imposed tariffs ranging from 5% to 25% on US goods. The higher tariff band will be levied against 2,493 goods including liquefied natural gas, soy oil, peanut oil and petrochemicals.
But what I find interesting is that China has left out crude oil from the tariff list. This is despite the fact that China has made a clear physical statement in not importing crude oil from the US.
Is it too blunt to link the US sanctions on Iran and the trade war with China? I do not think so. China is one of the main trading partners with Iran and has so far ignored US attempts to curb its crude oil trading. The new tariffs on China and the potential to relax them is another lever the US Administration can exert on Iran to achieve its stated aim of zero crude oil exports from Iran. In effect, the US can say to China: “Reduce crude oil imports from Iran and we will lower some tariffs on Chinese goods.”
That is one possible scenario, a scary one for the tanker trades.
India is another nation importing Iranian crude oil and would be more susceptible than China to the threat of tariffs, especially on its expanding oil products export trade and LNG imports. Then, there is the US’ position on regime change in Iran, regime change in Yemen, regime change in Venezuela, etc...
Perhaps next year I should provide two sets of predictions: Five predictions on the global tanker market, and five predictions on how President Trump will disrupt the tanker markets.