Reza Majidzadeh – political economy analyst

China’s oil imports from the United States amounted to 334,000 barrels per day, and Beijing was the second largest US oil customer. China also imports roughly 1.2 million bpd of oil from Russia, Saudi Arabia and Iran. Now, the question is, what country will China choose for US oil substitution, and what does the Chinese decision essentially mean?

The message and aftermaths of China-US oil trade war

The world of trade and international politics is the realm of coalitions, groupings, contingent strategies and signals; China’s decision to stop US oil imports, in the first place, signals an escalation of a trade war between Beijing and Washington. The signal is a message to the United States that China has decided not to give up its confrontation with the US on trade and the country’s willingness not to stop the declining value of the Yuan against the US dollar, on the one hand, and proceed with ‘Made in China 2025’ Plan’ on the other.

The US approach in 2018 has triggered trade wars with countries in North and Central America to Europe and Asia. Trump’s strategy has led to countermeasures by countries such as China. Both the United States and China have imposed billions of dollars of import tariffs on each other.  Most recently, the Chinese have counteracted by imposing 10% tariff on imports of LNG products from the US.

Export of US crude oil to China began in 2016 after Washington lifted its tariffs on the country’s oil exports, and in the last few months, it reached more than 500,000 bpd but soon dropped to 334,000 bpd. Although some analysts consider China’s recent decision to be temporary, Beijing’s stoppage of oil imports from the United States has implications for both countries, and for other countries, too. Before cutting its oil imports from the United States, China had reduced it gradually and instead turned to West Africa for its oil needs. Beijing has already concluded contracts with countries in West Africa to purchase 1.71 bpd crude oil for delivery in October.

Stopping oil purchases from the United States and replacing them with imports from West Africa has two significant consequences: First, Trump becomes more isolated in his mercantilist and commitment-evasive front. The more countermeasures against Trump’s trade war, the more probable it will be for a coalition to emerge that opposes Trump. The most important aftermath of these developments is strengthening the possibility of Iran’s ability to cope with US sanctions because reducing dependence on the US means that more companies (companies with no representatives in the US) would become less restricted to trade with Iran. If China’s oil imports from Iran do not increase, it will not be significantly lower than the current level.

Secondly, China has been the European Financial Services Provider and the supplier of goods in Latin America and Africa since the financial crisis of 2007. In other words, China is in a gradual transition period of replacing the US as the leading global economic power.

If the United States, in the context of this trade war, takes the approach of intensifying its trade war, then China is likely to step up its political role in the world; however, no explicit preference by China to play a pioneering role in world politics has been noticed so far. Even if the desire for pioneering exists, it is not openly revealed, but the ground is prepared as China is determined to carry out its Silk Road Project, and ‘Made in China 2025’ plan, and has adopted a countermeasure strategy in its trade war with the United States.

With the discontinuation of oil imports from the US, China is not concerned about its oil supplies, because it continues to import oil from Iran, and potential increased demand can be supplied from West Africa, Russia and Saudi Arabia. Although Riyadh intends to remain in the weakened US cartel, under the status quo, China is not gravely concerned about replacing 400,000 bpd of oil.

Aside from the oil issue, the international community is gradually preparing to set up arrangements to bring closer to reality the approaches that consider to remove US dollar from the world financial transactions and to strip a major player of its power to inflict negative impacts.