After pulling back from the nuclear deal in May, the Trump administration brought back sanctions against Iran. The US has demanded the allies and international firms to cut Iran oil import to zero by 4th of November.
It is a very aggressive move by President Donald Trump, unlike his predecessor, Barack Obama, who used to reducethe import by 20% every six months or so. Cutting off Iranian oil import to zero will not only have serious economic implications for Iran but will also have an adverse effect on the energy security of Asia.
The global oil demands are growing due to much faster economic growth. South Korea, Japan, China and India consume most of the Iranian oil along with other Asian states. Although these four states in the past succumbed to pressure by considerably scaling back their imports reluctantly, but none of them completely cut off oil supplies from Iran.These US allies in Asia aren’t happy with Trump’s bold policy-making, as it end angers the energy needs of the region.
Restrictions on Iranian oil will drive the oil prices higher. Hossein KazempourArdebili, Iran’s OPEC governor said, “Trump’s demand that Iranian oil should not be bought, and (his) pressures on European firms at a time when Nigeria and Libya are in crisis, when Venezuela’s oil exports have fallen due to U.S. sanctions, when Saudi’s domestic consumption has increased in summer, is nothing but a self-harm,”
“It will increase the prices of oil in the global markets. At the end, it is the American consumer who will pay the price for Mr. Trump’s policy,” he added.
This American policy can not onlycause inflation in the international oil markets but also jeopardize Asia’s Gulf oil supply. Recently Iran has threatened to block all Gulf oil exports if its imports are cut to zero.
Iran hinted that it can block the Strait of Hormuz used by the Gulf countries to export their oil. This strait, which is regulated by Iran in the north and by Oman in the south, is used for almost one-third of the world’s oil exports.
In Asia, Iran exports its largest oil volumes to India and China, where diverse and reliable energy supplies are significantly important for economic growth and national security.Both governments are reluctant to abide by Trump’s irrational decision.
Even though India has announced to cut imports of Iranian oil to avoid US sanctions, the domestic political implications of rising oil prices loom large for the Modi government. China also confirmed that they share “friendly” relationship with Iran and the Chinese foreign ministry spokesman describedits economic and energy ties with Tehran as “beyond reproach.”
Also, in the wake of US-China trade wars, Iran serves as a significant strategic partner and point of leverage for China against the United States.Trump administration’s sanctions campaign might turn into a strategic opportunity for Beijing, along with Moscow, to increase its influence in the Middle East.
Trump will have a hard time to deal with Iran’s oil markets. Recent technological advancements have brought significant new sources of supply online and the Iranian oil competitor, Saudi Arabia, will eagerly step in by cavorting up supply to take away some revenues and market share from Iran. Even with other gulf suppliers to replace Iranian oil imports, which have reached as high as 2.7 million barrels per day earlier this year, the outcome would still be tighter energy markets, escalated volatility and significant cost to the Asian economy.