Bloomberg Audio Studios, podcasts, radio news. For much of the past week, oil and gas traders have been bracing for a worst case scenario, and they're now watching it.
Unfold around, effectively shutting down the Strait.
Of hor Mooz.
It is at a standstill, so no oil is going in or out.
China's government telling the country's largest oil refiners to suspend exports of diesel and gasoline. The confrontation between the United States Israel in Iran has entered a volatile new phase, one that puts oil reserves and critical infrastructure directly in the crosshairs. Iran is widening his response now aiming to paralyze the economic lifeblood of this region oil and gas production.
Very interesting announcement from the President saying that the US are looking to provide naval escorts and to lower insurance costs for any vessels and tankers looking to pass through the streets.
The Strait of Hormose is one of the world's most critical choke points. As much as twenty percent of the world's oil passes through the strait each day, and it's remained effectively closed since the conflict began.
Nobody can close the streets of homos for too long. So you close that, you have a global crisis.
Verridin Fesher Raki is the founder and chairman of Energy consulting Group FGE.
If you keep it closed in the price of oil, we'll go through the roof. The French and the British will surely get involved, and I think maybe Chinese get involved too. Everybody has to marry three get involved, because that is creating a crisis, worst possible recession, global recession. And Iran is just too small fish to be able to close the strait of hormos.
But even if the fighting never reaches that worst case scenario for oil markets, countries across Asia, the world's biggest buyers of Middle Eastern energy, are bracing for potential shockwaves.
Japan is very exposed, South Korea is exposed. China buys a lot of Iran oil, Taiwan, India, Pakistan has most of its guests coming from Qatar.
Daniel tan Kate oversees Bloomberg's political and economic coverage in Asia.
It's pretty much affecting every economy in Asia. Not just yet because it's still early days. But if you do have prolonged sustained rise in oil prices that is inherently going to affect most economies in Asia because they buy a lot of oil.
This is the big Take Asia from Bloomberg News. I'm Wanha. Every week we take you inside some of the world's biggest and most powerful economies and we explore the markets, tycoons, and businesses that drive this ever shifting region. Today on the show, Asia's biggest economies react to war in the Middle East, how the Iran war is rippling through glowble oil markets, and which Asian economies are most at risk
to a large scale disruption. Since last year, China has been factoring in the uncertainty surrounding Iranian oil, quietly stockpiling crude at onshore sites. While China buys up some ninety percent of Iran's oil, those barrels account for less than fifteen percent of Beijing's overall oil imports. Russia and Saudi Arabia remain China's biggest suppliers, and that's unlikely to change anytime soon. But there's a big reason why China is concerned.
About half of its crude imports passed through the Strait of.
Ormus twenty percent of the global supply crude oil and refined products go through the Straits of Hormones, Soaudis have a pipeline to the Red Sea of around two million partters per day. Abu Dhabi has a pipeline of about a million day and a half partus per day outside the Gulf, but beyond there are no other pipelines. Beyond that is only the Strese of Horbos.
When the US and Israel attacked Iran late last week, China's response was immediate and pointed. My colleague Daniel ten Kate, who covers China's economy and political landscape for Bloomberg, says it underscored just how dependent China is on Gulf oil.
Beijing has basically come out and opposed what's going on. We had very strong words from Chinese Foreign Minister Wangi. He called it unacceptable to openly kill the leader of a sovereign country and institute regime change. So that's very frank, very strong language from China opposing this. At the same time,
they really want to calm things down. So after that statement, we had another statement from China saying that Iran also needed to respect the reasonable interests of its neighboring states.
Iran's oil influence has diminished due to prolonged sanctions and limited foreign investment. Today, the country accounts for just about three percent of global oil supply, producing about three point three million barrels a day. Doctor Fesheraki, you're originally from Iran and you spent many years living and working there. Broadly speaking, how important is Iranian oil to the rest of the world.
I any non production is three and a half million matters per day, but all the liquids combined are more than five million matters per day, so it's quite important. But the oil sales only go to China crude oil sales, so it is important only for China. But Chinese can replace the Iranian oil right away with other the distant cruds, except that they can't receive any discount. They have to
pay the real market price for it. But it is not the case that somehow if the Rnian crude is not there, they would be damage to the Chinese security or fenergy supplies. Oil is available in the market.
Thursday, China's government ordered its largest refiners to suspend exports of diesel and gasoline as the Middle East crisis deepens.
China. They want to make sure that their domestic interests are not hurt first. That's the top priority, and that means getting the oil to flow. Now, if the oil is flowing and you have this low level kind of fighting going on where the US has to devote a lot of attention and resources to the Middle East and military assets to the Middle East, but there's not huge economic disruption, I think that's the scenario that China would not mind seeing.
If the oil and Iran couldn't flow to China, what would that mean for China.
China can just buy from somebody else. China has the money and the capability financial ability to pay. Please remember in China, it Anian oil is not used by any of the major Chinese companies, so sign a pick cut China or Asino. They don't touch it any imprude. Only
the teapots use it. So if the teapots cannot get you know, most of these teapots or uneconomic, and the Chinese government wants to close them anyway is a matter of time, so they don't have it, they may close earlier, and it's better for the economy of China because Chinese oil companies have so much spare capacity, they don't really
need them. And the Iranian crew doesn't go into the big defineries in China because the big defineries around the stock market, and if you're in the stock market, you don't want to go. At least the US sanctions.
We've seen volatility in the energy markets, which was to be expected, but it's been measured. What's something that could happen that would send oil north of one hundred dollars a barrow, which seems to be kind of the line that everybody is watching for.
I think two events can make that happen.
One is that if there is an attack on the oil fields run for example, in Ua, the attack to buy which is a commercial hub, so they hit the hotels, they hit residential areas, but they haven't hit the oil fields of Abudabi, which is so close to them that they could destroy a lot of them overnight.
They have hit a Saudi refinery, but they haven't hit the oil fields.
Still, if you hit the oil fields that you interfere with the flow of oil, then the prices can jump very fast.
If you close access to the straits of Hormos for more than a month, the prices can jump hundred dollars or more.
Now, the APAC region where we are now is deeply dependent on Middle Eastern oil. China, for example, buys eighty percent ninety percent of Iranian crude, Japan imports nearly all of its oil from the Middle East, and India gets roughly half of its oil from the region. Singapore has said it may reassess its GDP depending on how long this conflict lasts. And I wonder when you look at the region broadly, where do you see the biggest vulnerabilities.
Everything is dependent on the price. If the price of oil is nineteen hundred dollars, then GDP they go down. But at the price of seventy seven, seventy eight dollars, no impact on GDP. Even at eighty dollars. I mean, we've had eighty dollars oil a long time and it was totally absorbed. Even in India, eighty dollars oil is easily absorbable. In China, eighteen ninety dollars is easily absorbable.
The issue is that if there is a lack of supply so that the economy cannot be run and the prices go to the roof, Yes, it has an impact, but I think people are jumping the gun out of abundance of caution.
Now, India is hugely reliant on Middle Eastern crude. At what oil price does this war become a real problem for India.
Well, India has done a study several years ago that eighty do barrel oil is okay with them. They can manage. If that was three years ago, I think today eighty five dollars ninety dollars would be tolerable. So India has a good ability to pay. There is a huge amount of strategic petroleum reserves in the world in the AACD countries, in the United States, China has a huge amount of strategic reserves. Japanese have two hundred and seventy days of the strategic reserve, so they can go for a whole
year without any imports. So nobody else in the world has that level of cover. And the Saudis and Ua have huge reserves of oil inside of Japan that they are obligated to sell to Japan first if there is a global crisis. The Koreas have far less reserves, but they can manage. These reserves have not been opened yet. And then the first indication for you to find out if this is serious, is that if this TT reserves are ordered to be opened.
So what scenario does Beijing hope to see out of this war? And could the US's actions be driving American allies in Asia closer to present chijin Ping. That's coming up after the break. Later this month, Trump is set to sit down with Chinese present chijin Ping at a major summit, and their teams are already laying the groundwork. US Treasury Secretary Scott Bessant and Chinese Vice Premier Halufhun are expected to gather in Paris in a few weeks
to hash out possible deals. And despite recent US strikes in Iran, Bloomberg's Daniel ten Kate says Washington and Beijing have plenty of reasons to keep the conversation going.
If you look at the economics of it. Yes, China eyes a lot of Iran's oil. It's definitely more important to Iran than China, and China is pretty diversified in its energy mix. But if they lose the entire Gulf, that's a much bigger problem for China. I think the optics depend a lot on what happens in the next month. I mean, Trump has taken out two leaders in two months of countries that were friendly with China, and so oil could be hurt. You could be seeing more disruption
the global economy. We're seeing Iran still targeting a lot of economic infrastructure in the region, targeting US embassies, targeting oil and gas infrastructure, blocking ships in the Strait of Hormuz. Trump threatening harder hits against the Iranian regime. So where are we in a month. I don't know. I mean, I think that's kind of a big question for China
as well. Would they like to separate the two issues and make it go forward, Yes, I think they would, But optically, do you want to act really chummy with Trump? So I think that's the calculation there. How much do they try and signal to the rest of the world and to their own population and everything else about what they think this means for them.
How does the US's latest actions We've got this in Venezuela earlier this year, affect its relationship with its allies in the region. Do you think it helps position China as the more reliable partner?
So you could see a lot of traditional US allies at the very least, they're nervous about what's going on, and they're uneasy about it, and we see that publicly. What they can do about it is another question. You know, there's not you still need the US market. The US is still the predominant military power, so from the White House's point of view, it's probably like, well, who cares, what are they going to do anyway? But over the
long term that does erode American soft power. It's making countries look around beyond the US to different partners, and China is one of them, and it does kind of raise questions like, when you do need those partners the next time, when you're under the gun in some way, are they going to be there for you in the way that you want them to be? And that remains an open question.
What about politically? Where else in this region does Iran have close ties?
Iran maintains fairly good ties with the region, and Asia generally likes to maintain good ties with Iran. So India, for instance, had quite good ties, and they've invested a lot in a port called Chabahar, which was meant to provide an alternative route for Afghanistan to send goods out so it didn't have to go through Pakistan. For instance, a lot of countries here would love to buy Iranian oil and probably invest in Iran as well well, but they also don't want to fall a foul of US sanctions.
So if you rely on dollar trade and want access to dollars, then you have to play ball, and so most Asian economies are doing that. They have no inherent dislike of Iran. I'm sure they don't like Iran pursuing a nuclear weapon, but they also probably would not support regime change, and many have expressed concern about what has
happened and whether it's compliant with international law. Japan is an interesting case too, because they've traditionally tried to position themselves as a kind of a go between between the US and Iran. We've seen the Iranian ambassador, for instance, hold a press briefing in Tokyo. They've also done that in Indonesia, where Proboo, the leader there, has offered himself as a mediator, and of course he's close to Trump and joined his Board of Peace and considering sending troops
to Gaza. So basically everyone in Asia wants to get along with both countries. They want to keep the oil flowing and they want to end this thing as quickly as possible.
And I think what's also interesting is that the Middle Eastern hubs are actually quite important to Asia in a way that you wouldn't necessarily think at first. But Middle Eastern hubs, you know, do link Asia to Europe, to Africa and the US. I mean, certainly when you look at flights, thousands of flights were canceled after UAE airports closed for security reasons. How damaging is this to Asia's connectivity and to commerce.
Certainly if it's prolonged, it's going to change the equation for how people get around here. I'm sure everyone knows people who are stuck in hotels in Dubai right now. And that's one example of how connected and how important the Middle East is as a hub, as a transit hub in particular. There's all sorts of questions on logistics
right now that are just being worked out. I think we're in the emerging and see stage right now, where people can sort of deal with it for a week or two and get on with life if it ends quickly. But if you're looking at prolonged disruptions to flights, to shipping, to oil supply, then your supply chains are gonna need to be reworked, and anytime you do that, it's more expensive, so that means people are going to be paying more for a lot of various goods and travel.
This is The Big Take Asia from Bloomberg News. I'm wanha. To get more from The Big Take and unlimited access to all of Bloomberg dot Com, subscribe today at Bloomberg dot com slash podcast Offer. If you like the episode, make sure to subscribe and review The Big Take Asia wherever you listen to podcasts. It helps people find the show. Thanks for listening. To see you next time.