Iran sanctions may not affect China oil demand
A tough new embargo on Iranian oil may cause the Chinese to seek better prices, but add complications.
After exhaustive efforts to close Iranian nuclear programs, the EU finally imposed oil sanctions on the intransigent Middle-Eastern nation. Nonetheless, forecasts from major international banking group Goldman Sachs suggest the tensions will not significantly affect the rising price of oil. The U.S. bank estimates an 8% increase for West Texas Intermediate crude to $113 a barrel and a 2% increase in Brent crude to $120 a barrel.
Goldman Sachs expects that, over a 6 month period, China will gradually absorb any Iranian oil surplus as Europe looks to Saudi countries to meet its demand. The group expects to see “a swap of Saudi oil for Iranian by Europe being largely offset by China filling its strategic reserves with Iranian oil instead of Saudi.” China, which currently imports around 20% of Iran's oil, is likely to use the sanctions to negotiate more favourable deals with the oil producing nation.
However, some observers are worried that an increase in Sino-Iranian trade could complicate relations with the U.S. as well as with Arabic nations, especially as Chinese president Wen Jiabao promised to help strengthen trilateral ties and work towards peaceful resolutions in the Middle-East.
