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Reuters
19-05-2025
- Business
- Reuters
Lifting US sanctions on Iran could crush China's 'teapot' oil refineries: Bousso
LONDON, May 19 - The possible lifting of U.S. sanctions on Iran's oil exports could deal a fatal blow to independent Chinese refineries that have thrived by processing Tehran's discounted crude, while also putting further downward pressure on oil prices. President Donald Trump has taken a dual-track strategy with Iran, applying a "maximum pressure" campaign of tightening economic sanctions, while simultaneously engaging in direct high-level talks over Tehran's nuclear programme. Last week, Trump indicated the sides were getting very close to a deal. Of course, nuclear talks between Iran and Western powers have always been extremely complex – full of stops and starts – and Trump's recent statements surrounding a potential deal include much hedging. But if there is a breakthrough deal, it would almost certainly include a repeal of many U.S. economic restrictions on Iran's oil industry, which would have a profound impact on global energy markets. Strict U.S. sanctions on Iran's oil industry have been in place since Trump pulled out of a U.N-backed nuclear deal in 2018. While sanctions have dented Tehran's exports – the country's major source of revenue – they have never succeeded in reducing exports to zero, as Trump vowed seven years ago. Iranian exports reached 2.8 million barrels per day (bpd) in May 2018 and hit a low of just 150,000 bpd in May 2020, before steadily recovering to an average of around 1.65 million bpd so far in 2025, according to analytics firm Kpler. Chinese privately owned refineries, commonly known as teapots, have been the main buyers of Iranian crude in recent years, attracted by the heavy discounts. Concentrated in the eastern Shandong province, these small independent refineries have capacity of around 4 million bpd, or roughly one-fifth of China's total refining capacity. Large volumes of sanctioned crude have made their way into China in recent years through a complex web of shell companies and a so-called "dark fleet" of tankers that transfer oil between different vessels to obscure the origin. The precise total volumes involved in this trade are unclear as official Chinese customs data suggests the country does not import any Iranian oil. However, Kpler, using ship tracking and satellite technology, estimates that China imported 77% of Iran's 1.6 million bpd of exports last year. So far this year, China's share averaged around 50%, probably as a result of new U.S. sanctions targeting several Shandong teapot refineries and port operators, a theory supported by the fact that the amount of Iranian crude sitting on ships at sea, instead of being discharged, has reached the highest level since November 2023. If sanctions are loosened, this oil would be sold swiftly. Iranian production could also likely be ramped up quickly. Its oil sector has proven surprisingly resilient in the face of mounting Western sanctions, with crude oil production averaging 3.3 million bpd in 2024, according to OPEC data. Production could be ramped up by 500,000 bpd within six months of lifting sanctions. Not only would the rapid return of Iranian crude to global markets likely put further downward pressure on oil prices that have fallen from a high of $82 a barrel in January to around $65 today, but it would also deal a heavy blow to China's teapot refineries. These independent outfits typically have very slim profit margins because most run at utilization rates of around 50% or less due to overcapacity in the sector and restrictions on exporting fuels overseas. Plants have faced fierce competition in recent years, and those that have survived have done so largely because they have been able to generate lucrative profits by processing cheap Iranian as well as Venezuelan feedstock. The removal of U.S. sanctions on Iranian crude could therefore undermine their business models, meaning many plants would likely have to sharply pare back operations or, in some cases, shut down entirely. A drop in output from Chinese teapots, in turn, could provide a boost to large state-owned Chinese refineries that will pick up the slack in the domestic market. More broadly, a decline in global refining capacity should boost the sector at a time of increasing uncertainty over demand for fuels such as gasoline and diesel due to the ongoing trade war and energy transition. The return of Iran into global oil markets would create headaches for many – not least Saudi Arabia, which is in the middle of a price war – but the biggest losers would likely be the independent Chinese refiners. And the biggest beneficiary, outside of Iran itself, would be the refining industry – whether or not that's what Trump has in mind. ** The opinions expressed here are those of the author, a columnist for Reuters. ** Want to receive my column in your inbox every Thursday, along with additional energy insights and trending stories? Sign up for my Power Up newsletter here.
Arab News
13-05-2025
- Business
- Arab News
An opportunity to re-anchor the Saudi-US relationship in a shared strategy
As US President Donald Trump visits Riyadh for a high-stakes visit to Saudi Arabia, the geopolitical and economic landscape he navigates is more fractured — and more fluid — than at any point in recent decades. This official visit to the Kingdom, his first foreign trip of a second term, comes amid the breakdown of long-standing global trade norms, a reshaping of energy markets, and an accelerating drift toward regional self-determination. For both Washington and Riyadh, this is no ceremonial engagement — it is a decisive opportunity to reconfigure the bilateral economic compact for a multipolar, tech-driven world. For decades, US-Saudi ties rested on a transactional foundation: American security guarantees and industrial expertise in exchange for oil stability and petrodollar reinvestment. But that formula, forged within the geopolitical architecture of the 20th century, has eroded. With oil prices hovering near the low $60s per barrel, Saudi Arabia's fiscal space is narrowing. It can no longer rely solely on hydrocarbons to finance its domestic ambitions or project geoeconomic influence abroad. In this context, Riyadh's investments in the US must be matched by a new framework of mutually beneficial incentives — including preferential access, co-innovation platforms, regulatory harmonization, and industrial localization. In 2024, trade between the two countries totaled approximately $39 billion, spanning aerospace, health care, defense, and education. Yet trade flows alone obscure a deeper realignment. Saudi Arabia's Public Investment Fund, among the world's most dynamic sovereign wealth vehicles, has become a strategic actor in US capital markets — anchoring investments in artificial intelligence, electric mobility, cloud infrastructure and cinematic entertainment. This is not opportunistic capital. It is deliberate, long-term, and aligned with Riyadh's transformation under Vision 2030. From a US vantage point, Saudi Arabia is not simply a market — it is an investment partner with regional scale and strategic reach. Giga-projects such as Neom, Red Sea Global, Diriyah Gate, and New Murabba offer American firms an unparalleled testbed to scale frontier technologies — particularly in clean energy, AI, biotech, and next-generation infrastructure — underpinned by sovereign commitment and funding certainty. Trump's visit is thus a critical inflection point. It offers a chance to move beyond the zero-sum rhetoric of transactionalism and re-anchor the relationship in a shared strategy of co-investment and industrial policy coordination. To attract sustained Saudi capital, the US must offer more than financial returns — it must offer access. This includes targeted investment incentives, joint innovation hubs, and Saudi participation in the development of foundational technologies, from semiconductors to quantum computing. Giga-projects such as Neom, Red Sea Global, Diriyah Gate, and New Murabba offer American firms an unparalleled testbed to scale frontier technologies. John Sfakianakis A particularly promising domain for strategic alignment is the nexus between energy and data. As data centers become the physical substrate of the AI economy, demand for secure, scalable, and clean power will soar. Here, Saudi Arabia — with its abundant land, engineering capacity, and sovereign financing — can serve as a critical partner in powering next-generation US-linked data infrastructure using small modular nuclear reactors. This is a high-stakes, high-value collaboration: the fusion of American technological leadership with Saudi scale and capital to co-develop resilient digital and energy ecosystems. To realize this vision, institutional mechanisms are essential. The US must provide clear and stable regulatory pathways for Saudi investment in sensitive sectors, including transparent national security review procedures. Riyadh, in turn, must ensure predictable legal and commercial frameworks that protect foreign investors and enable effective dispute resolution. A next-generation alliance should be underpinned by joint ventures, dual IPO listings, technology transfer frameworks and mutual recognition standards across digital and industrial domains. This visit, then, is not a diplomatic overture — it is a geopolitical stress test. Can the Saudi-US relationship evolve beyond its traditional oil-for-security model into a 21st-century partnership built on innovation, industrial resilience and geoeconomic alignment? Or will it remain tethered to a geopolitical script that no longer reflects global realities? If successful, Trump's visit could mark the beginning of a more mature, adaptive, and future-facing US-Saudi alliance — one that sets a precedent for how advanced and emerging powers can jointly navigate the complexities of a fragmenting global order.
Globe and Mail
06-05-2025
- Business
- Globe and Mail
Energy ETF Shock: Oil Plummets as Natural Gas Soars
Global energy markets are experiencing an unusual divergence as crude oil prices collapse to multi-year lows while natural gas stages a surprising recovery. This growing gap between two traditionally linked commodities highlights how shifting supply chains, geopolitical tensions, and regional demand factors are reshaping the energy landscape. Crude's Perfect Storm Oil markets have plunged into bearish territory, with Brent crude recently breaking below the $60 psychological barrier - a threshold not seen since early 2021. The downturn accelerated after OPEC+ blindsided traders by approving larger-than-expected production increases, adding another 411,000 barrels per day to June's output. This marks the cartel's second consecutive month of aggressive supply hikes, overwhelming a market already swimming in excess crude. Market observers see Saudi Arabia playing a complex game. The kingdom appears determined to discipline quota-busting members like Iraq and Kazakhstan while simultaneously probing how low prices can go before hurting competitors. Some analysts interpret this as Riyadh's attempt to maintain its dominant position in global oil markets, even if it means accepting short-term pain. The production surge coincides with growing demand worries. Escalating U.S.-China trade tensions have raised recession fears, potentially slowing economic activity in the world's top oil-consuming nations. Recent economic indicators from both countries paint a concerning picture, with Chinese factory activity contracting to its weakest level in over a year and U.S. economic data showing unexpected softness. The oil market's woes have been compounded by a dramatic slowdown in maritime trade. Major ports like Los Angeles report cargo volumes down by more than a third year-over-year as tariff wars disrupt global shipping patterns. With fewer container ships crossing oceans, demand for bunker fuel - the lifeblood of commercial shipping - has taken an additional hit, putting further downward pressure on crude prices. Gas Markets Bounce Back While oil flounders, European natural gas prices have rebounded sharply, climbing 20% from April's lows. The rally stems from a convergence of supply anxieties and shifting trade winds. Europe begins its crucial storage refill season with inventories at their most depleted level in three years, following a brutal winter that saw unprecedented withdrawals. The supply crunch was worsened by Europe's renewable energy shortfall during the winter months. Unusually calm winds and persistent cloud cover crippled wind and solar generation, forcing greater reliance on gas-fired power plants that further drained already-low reserves. Now, with the continent racing to rebuild inventories before next winter, traders worry Europe may struggle to secure adequate supplies. The bullish case for gas received another boost from potential thawing in U.S.-China trade relations. Any meaningful de-escalation could rekindle Chinese appetite for LNG shipments, setting the stage for intense competition between Asian and European buyers. This comes as global LNG export capacity remains stretched thin, with U.S. terminals already operating near maximum capacity. Navigating the Divide For investors, this unusual market split creates both risks and opportunities. Oil-linked investments face continued headwinds from oversupply concerns and potential contango in futures markets. Meanwhile, natural gas assets may benefit from tightening fundamentals, though they remain exposed to weather variability and geopolitical developments. The coming weeks will prove pivotal. OPEC+ members will convene in early June to reassess their production strategy, while traders will scrutinize Europe's storage rebuild progress and any breakthroughs in U.S.-China trade talks. This rare decoupling of oil and gas markets underscores how regional dynamics and commodity-specific factors can override broader energy sector trends. Where oil suffers from too much supply and weakening demand, gas markets are responding to acute physical shortages and infrastructure limitations - a reminder that in today's complex energy landscape, each commodity marches to its own beat. Crude Oil & Natural Gas ETF Performance This gap was illustrated in the ETF market. While the natural gas ETF (HUN) delivered strong double-digit gains (10.4% weekly, 11.1% YTD), the crude oil ETF (HUC) suffered significant losses (-5.9% weekly, -16% YTD). The contrast is even starker when considering flows - despite its positive performance, the natural gas ETF saw 13.7million in outflows, while investors poured nearly1 million into the declining oil ETF, suggesting some may be betting on an oil rebound despite current weakness. This divergence exactly mirrors the fundamental split we're seeing between oversupplied oil markets and tight natural gas supplies. Group Data Funds Specific Data Please note this article is for information purposes only and does not in any way constitute investment advice. It is essential that you seek advice from a registered financial professional prior to making any investment decision.
