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The Chinese Oil Play against US Iranian Sanctions

By: Energy Capital Research Group
Harvest Exchange
July 24, 2018

The Chinese Oil Play against US Iranian Sanctions

The Beijing-Teheran Connection

There has emerged more than anecdotal evidence that Beijing is intent on using crude oil as a weapon in the developing tariff fight with Trump.

China has indicated it would place American oil exports on its list for probable levees, a move that is intensifying following a second White House threat to include all ~$500 billion worth of Chinese exports on the US penalty list.

In the past several days, numerous well-placed international oil trading contacts have confirmed that middlemen based in Singapore, Hong Kong, and Switzerland have begun structuring counters to the US moves against both China and Iran.

It now appears quite likely that crude oil contracts will be featured in a combined move to offset impending US sanctions against Iran and trade tariffs against Chinese goods.

I had initially discussed the oil play a month ago here in ECRG Intelligence. Then, I suggested that sources were indicating a network of coordinated trading responses were in the works:

China has been structuring its own response [to the threat of renewed US Iranian sanctions]. Under the guise of its reaction to American tariff threats, Beijing has done two things: placed US crude oil and processed oil products on its own tariff list, and begun using greater consignments of Iranian exports as a weapon of its own.

China may not actually want to import massive new volumes of Iranian oil, but it can incorporate the moves into a broader network of contract swaps. Given the substantial trade surplus with Iran, this also allows product to be paid for in kind.

…[E]vidence now exists for a wider usage of future contracts and other derivatives by actors in several

trading markets to underpin support for the Iranian oil trade and an opposition to US sanctions.

[S]hould the US move to operationalize a sanctions regimen, there exist tangible signs that London, Paris, Berlin, Brussels, Moscow, and Beijing will provide sovereign cover for a rejection and concerted opposition.

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Originally Published at: The Chinese Oil Play against US Iranian Sanctions