Energy-hungry Asian economies are trying to figure out how to keep the supply of oil coming from Iran in a way that keeps the U.S. government happy. China in May stocked up on Iranian crude oil before the U.S. government renewed sanctions waivers extended for an overall import decline. South Korea, meanwhile, said it aims to establish itself as a regional oil hub while at the same time cutting back on Iranian crude oil imports. An Iranian media report this week said the nation’s currency, the rial, should rebound if the government of President-elect Hassan Rouhani moves closer to the West. Given Western momentum, however, the next Iranian government should make Western diplomacy priority No. 1 or risk a long-term economic decline.
Chinese imports of Iranian crude oil increased by 50 percent in May ahead of a U.S. decision to renew a sanctions waiver for “significant” reductions in Iranian crude oil. Crude oil imports for May were up 6.4 percent year-on-year. China is expected to lead the world in terms of demand growth for oil, the Organization of Petroleum Exporting Countries said. Considering the government in Beijing was given relief in June, however, not all of that demand will be met with Iranian crude.
South Korea assured the U.S. government it would cut back on Iranian crude oil shipments in order to stay on Washington’s good side. South Korea needs U.S. support with keeping North Korea’s nuclear ambitions at bay. Seoulaims to increase the volume at an oil storage facility from 8.2 million barrels to 33 million barrels in an effort to become a regional oil hub. It too will have to meet its energy ambitions without Iranian crude oil.
Washington and its European allies have designed economic sanctions on Iran so that it can’t use revenue from its energy sector to finance its controversial nuclear program. U.S. Secretary of State John Kerry said Monday from India the U.S. government appreciated New Delhi’s hard work in cutting back on its dependency on Iranian oil. India, he said, has been “very cooperative” in relaying to Iran that its nuclear ambitions would have economic consequences. Indian External Affairs Minister Salman Khushid, for his part, said concerns over Iran have been “a burning issue” for his government. India already cut its imports of Iranian crude oil by more than 10 percent and there’s no evidence to suggest that trend won’t become the status quo for New Delhi.
Iran’s state-funded broadcaster Press TV reported Monday the national currency, the rial, is expected to recover should President-elect Rouhani move closer to Iran’s traditional adversaries. The value of the currency plummeted last year under pressure from economic sanctions targeting the national energy sector. Sanctions have been so effective the Iranian government said it was considering decoupling the economy from the energy sector altogether.
Rouhani secured the majority of the votes needed to declare an outright win during Iran’s president elections June 14. Considered a reformer when compared with the five other candidates on the ballot, the former nuclear negotiator said he would lead as a moderate. The U.S. Treasury Department said before the elections it would be tenacious with its sanctions pressure on Iran and there have been few developments since Rouhani’s victory to suggest a sea of change is expected from Tehran. The IAEA already said that Iran’s nuclear program was advancing despite sanctions. Unless he’s just paying lip service to reform, Rouhani has his economic work cut out for him when he takes office in August.
This piece is cross-posted from Oil Price.com with permission.