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  • Aug 28, 2014
  • Updated: 5:49am
CommentInsight & Opinion

Asian importers of Iranian oil put energy and strategic needs first

Hooman Peimani looks at why the major buyers of Iranian oil are set to increase or resume imports

PUBLISHED : Tuesday, 28 August, 2012, 12:00am
UPDATED : Tuesday, 28 August, 2012, 2:31am

The US-EU sanctions on Iran's oil industry succeeded in decreasing its oil exports from 1.7million barrels a day in June to about one million barrels a day last month. However, the four major buyers of Iranian oil have decided to increase (India, China and Japan) or resume (South Korea) their imports.

Technical factors have played a part: Iran can now deliver a larger amount of oil on its own tankers, covered by Iranian insurance, and deal with banking transactions through using small non-Iranian banks, for example, and conducting its exports in the importing countries' currency and receiving goods in return for its exported oil.

To a significant extent, these measures have helped Iran offset the sanctions denying it access to international shipping, insurance and banking.

The strategic interests of the four major Asian economies were also a factor. Energy security imperatives require that they continue to work with Iran as their long-term oil and eventually gas supplier.

They are also interested in trade with Iran as a large and growing economy. Besides, Iran is a growing regional power influential in certain energy-rich and strategically important regions (the Persian Gulf/Middle East and Caspian sea) and plays a role in consolidating the multipolar international system, to prevent a unipolar world led by Western interests.

Asian powers also wish to maintain affordable oil prices by keeping Iran as a major supplier. As Iran's exports have fallen, fears of a total halt have seen prices rise to over US$100 per barrel. On top of this, the high-sulphur Iranian oil is suitable for many of their refineries, which otherwise would have to undergo costly modification to accommodate other types of oil.

It has also been suggested that Tehran offers its major oil importers massive discounts.

Today, China, India, Japan and South Korea account for the bulk of Iran's oil exports. Their imports are expected to increase next month given South Korea's decision to resume imports, two months after it ended its imports due to the European Union's ban on tanker insurance for Iranian oil. Evidence suggests further increases in imports by China, Japan and India.

Political prudence and strategic interests have justified the large Asian economies' decision, much to the dismay of Washington and Brussels.

Still, the Asian countries' increase of oil imports is expected to be limited to avoid major political and trade conflicts with their major Western trading partners. The same factors will probably prevent Washington from reacting too strongly to risk damaging its ties with its large Asian trading partners.

Dr Hooman Peimani is the head of the Energy Security Division and a principal fellow at the Energy Studies Institute, National University of Singapore

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