Beijing: Saudi Arabia claims its oil production infrastructure, 60% of which was knocked off-stream in a pre-dawn drone attacks on September 14, will be running at full throttle again by month’s end, an assessment few energy industry analysts view as feasible.
While the Middle East waits to see how the US and Saudi Arabia ultimately respond to the attacks blamed on Iran, the impact on Asia’s oil markets is coming into clearer view, with China looking the most vulnerable to any prolonged disruption to Saudi supplies.
Saudi Arabia is the world’s largest oil exporter, the de facto leader of the Organization of Petroleum Exporting Countries (OPEC) cartel and the world’s third largest crude oil producer after the US and Russia. The Asia-Pacific, home to some of the world’s largest net oil-importing nations, is increasingly dependent on Saudi oil to fuel their fast-growing economies.
Last year, China imported 459.3 million tons (mt) of crude oil, a 10.1% year on year rise worth a record-breaking US$239.2 billion. That represented a 20.2% share of total global consumption, according to China’s National Bureau of Statistics (NBS). In 2018, the US imported 247.8 mt of crude oil, while India was the third largest crude oil importer at 226.6 mt, followed by Asian industrial heavyweights South Korea (151.3 mt), and Japan (149.3 mt), according to industry data.
But the attacks have put China’s reliance on Saudi Arabian crude oil exports into particularly sharp relief. In 2018, Saudi Arabia was China’s second largest oil supplier, providing 12.4% of its imports at a value of around $30 billion. Over 40% of China’s oil supplies are delivered by Gulf countries, meaning China is especially vulnerable to a similar type of future attack on oil production facilities. Russia was China’s largest supplier at 15.8%, and Angola its third biggest at 10.4%.
China has traditionally relied on oil imports from Saudi Arabia, Iran, Russia and, more recently, the US. China’s imports of US oil, however, plunged 76% in the first half of 2019, due largely to the two sides’ escalating trade war. US sanctions re-imposed last year against Iran’s energy sector have also forced China – though it is clearly finding ways to circumvent the restrictions – to cut at least 50% of its oil imports from Iran, according to ship tracking data firms.
“China…will be the biggest victim of the attacks on the oil facility in Saudi Arabia,” Lin Boqiang, director of Xiamen University’s China Center for Energy Economics Research, said in a China Daily report just after the drone attacks. If Saudi oil production operations can be brought back online by the end of the month, as Saudi Aramco claims, the problem for Chinese refineries will be limited.
But if repairs at the two damaged oil- producing installations take much longer, as some analysts speculate, China will have to reformulate its plans, including cutting refinery run rates and importing more refined fuel products from other countries, including significantly the US. That will conceivably give the US another pressure point on the Chinese economy as the two sides enter another round of negotiations in their trade war.