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Thursday, January 12, 2012 12:42 AM


China Snubs Geithner on Iran Oil; China Gets Cheaper Iran Oil as U.S. Pays Tab for Hormuz Patrols; Retired Admiral Warns "US Policy Benefits the Chinese"


The US' complete ineptitude on oil policy is in the spotlight just as predicted. A pair of articles will show what I mean.

China Snubs Geithner on Iran Oil

Bloomberg reports China Snubs Geithner on Iran Oil, Japan Plans Cut

U.S. Treasury Secretary Timothy F. Geithner’s efforts to tighten economic sanctions on Iran over its nuclear program won backing from Japan a day after China rejected limiting oil imports from the country.

China, which counts Iran as one of its top petroleum suppliers, yesterday snubbed the U.S., with a vice foreign minister saying his nation “opposes imposing pressure and sanctions.”

‘Halfway Solution’

“Japan will try and seek a halfway solution where they’ll try and limit imports from Iran and boost imports from other Middle Eastern countries that are also U.S. allies,” said Razeen Sally, a professor at the Lee Kuan Yew School of Public Policy at the National University of Singapore. Given its military alliance with the U.S., Japan “is much more susceptible to U.S. pressure than China,” he said.
Halfway Idiocy

Razeen Sally, a professor at the Lee Kuan Yew School of Public Policy at the National University of Singapore is an economic dunce. Oil is fungible. It makes no difference where one gets the oil.

If Japan gets oil from Saudi and China gets more oil from Iran nothing changes. However, if there is any supply disruption prices will rise. Simply put, if Iran pumps less oil prices will rise unless Saudi Arabia or other supplies makes up the difference.

If Iran oil is shut off, Saudi  and other supplies cannot make up the difference. If there is a partial shutdown, and China buys Iranian oil to make up the difference nothing at all changes unless China uses pressure to get a better deal.

I mentioned such problems were likely in Geithner Seeks Support for Iran Oil Sanctions From China; What Should China's Response Be? Shoddy Reporting by Bloomberg on Oil Story
What Should China's Response Be?

I propose this:

Dear Secretary Geithner

In light of the fact that the US Defense Secretary announced on Face the Nation that "Iran Not Trying to Develop Nuclear Weapon" China will not support a US-Led oil embargo.

Moreover, we will consider any efforts by the US or Europe to block Iranian exports to be economic warfare against China.

We call on the United States to dump their unfounded economic attack on Iran immediately.

That would set the proper tone for discussion and make the Obama administration as well as Republican warmongers look foolish in the process.

Unfortunately, China is unlikely to do that. Instead, If the US and Europe are stupid enough to ban Iranian oil, China would have additional leverage on those disputed Iran oil contracts mentioned above.
It took precisely one day to prove the above highlighted theory correct.

China Gets Cheaper Iran Oil as U.S. Pays Tab for Hormuz Patrols

Please consider China Gets Cheaper Iran Oil as U.S. Pays Tab for Hormuz Patrols
China stands to be the biggest beneficiary of U.S. and European plans for sanctions on Iran’s oil sales in an effort to pressure the regime to abandon its nuclear program.

As European Union members negotiate an Iranian oil embargo and the U.S. begins work on imposing sanctions to complicate global payments for Iranian oil, Chinese refiners already may be taking advantage of the mounting pressure. China is demanding discounts and better terms on Iranian crude, oil analysts and sanctions advocates said in interviews.

“The sanctions against Iran strengthen the Chinese hand at the negotiating table,” Michael Wittner, head of oil-market research for Societe Generale SA in New York, said in a phone interview. Chinese refiners are likely to win discounts on Iranian crude contracts as buyers from other nations halt or reduce their purchases of Iranian oil to avoid being penalized by U.S. and European sanctions, he said.

At the same time, the U.S. is bearing most of the cost of air and sea patrols and surveillance in the Strait of Hormuz, through which transit 17 million barrels a day of crude, or 20 percent of world supplies. China, the No. 2 importer of oil after the U.S., enjoys protection for the shipping lanes without paying a cent, retired Admiral Dennis Blair, a former U.S. Director of National Intelligence, said in an interview.

“Policing the region imposes a cost on us, and benefits the Chinese,” Blair said in an interview. A few Iranian officials recently have threatened to shut the passage if the U.S. and Europe enforce tough oil sanctions.

China’s oil executives are expected to demand lower prices for Iranian crude, said Mark Dubowitz, director of the Iran Energy Project at the Foundation for Defense of Democracies, an advocacy group in Washington.
Reducing Purchases

Dubowitz estimates that if China were the only remaining buyer of Iranian crude, it might command as much as 40 percent discounts. Among the other major refiners of Iranian oil, India has increased orders from Saudi Arabia, and Japanese and South Korean officials say they are gradually reducing their dependence on Iran, Dubowitz said.
Inane US Oil Policy 

The US picks up the tab for China to get cheaper oil as prices rise elsewhere. In light of the fact US Defense Secretary Admits "Iran Not Trying to Develop Nuclear Weapon" , US policy is inane.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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