These two developments can be expected to work against each other, especially where the world’s largest energy market is concerned. Although the US is now legally permitted to export oil condensates, China is not expected to purchase any of those exports in the foreseeable future. Instead, a growing portion of China’s vast energy needs will be fulfilled by cheaper and higher quality Iranian crude, thanks in no small part to the effects that sanctions relief have had on the Iranian oil industry.
Iranian news sources in recent weeks have reported on several projects to develop domestic and shared oil fields. Presumably, much of the cash-strapped country’s financing for those projects is coming from the release of frozen assets, which will total to 7 billion dollars once the latest 2.8 billion goes through. This total figure amounts to the maximum value of economic relief that was estimated by Secretary of State John Kerry.
In fact, a study co-authored by the Foundation for Defense of Democracies found that over a six month period, Iran’s benefit from US-led sanctions relief amount to 11 billion dollars and was likely to continue to accumulate several billion more. In addition, the good will that has been shown to Iran by its traditional foes has given international businesses and some governments the impression that sanctions would be removed entirely, and this has evidently provided incentive for some of them to enter the market early.
Some countries, on the other hand, remained invested in Iran through back channels even when sanctions were in full effect. China and Russia both pursued trade agreements with Iran that circumvented US dollars and helped to keep the Iranian oil economy afloat. Now these players are relatively free to come out from the shadows, and as a result, Chinese imports of Iranian crude, always significant, have grown to be nearly 50 percent greater in the first half of this year than the same period last year.
Overall Iranian oil exports are reportedly at a two year high and are projected to average approximately a quarter of a million more barrels per day during the second half of the year, as compared with the first.
All of this points to the arguably ironic situation in which US efforts to reach out to the Islamic Republic of Iran are directly undercutting the US’s simultaneous efforts to enter the oil export market alongside its longtime enemy. Whereas China might otherwise have welcomed the US as an alternative supplier of some ultralight oils, now this is very unlikely to be necessary, as it can take in Iranian exports in larger quantities, at lower prices, and with less effort or surreptitiousness.
Even other Asian importers included South Korea and Japan are evidently cautious about taking in US oil, and are doing so merely on a trial basis. If current trends continue and Iranian oil is offered in higher quantities and with fewer indications of international opposition, it is quite possible that other nations will follow China’s example in eschewing the American product in favor of further supporting Iran’s unexpectedly fast growth.