New Delhi: The US-Iran deal is setting the stage for a recovery in Chinese oil demand that risks driving up global inflation pressures, according to Bloomberg Economics, assuming the agreement holds and eventually restores energy flows to the world’s second-biggest economy.
“Throughout the conflict, China has effectively acted as a shock absorber for global energy markets, with its sharp drop in crude imports helping dampen oil price pressures during one of the most severe supply squeezes on record,” Bloomberg economists Chang Shu and David Qu wrote in a note on Monday.
“Any recovery in Chinese oil demand — particularly if energy flows remain constrained — could tighten global energy markets, reignite inflation pressures and complicate the task facing central banks,” they said.
Iranian oil shipments to China, a resilient trade that’s survived years of US sanctions to provide a crucial economic lifeline to Tehran, has come under huge strain from waning demand and an American blockade.
Iranian crude flows to China tumbled to about 160,000 barrels a day in May, down from 1.8 million barrels a day in February, according to data compiled by Bloomberg. US and Israeli strikes on Iran started at the end of that month.
China, the largest buyer of Iranian oil, has consistently called for maintaining a ceasefire and reopening the Strait of Hormuz, with both Iran and the US blocking traffic through the crucial waterway for global energy flows.
Whether the US-Iran deal holds will have widespread implications for China’s economy, which has depended on exports to drive growth. A prolonged conflict risked denting demand abroad as higher oil prices pushed up the costs of inputs while shipping charges rose, making goods more expensive.
US President Donald Trump said during his visit to Beijing last month that he and Chinese leader Xi Jinping shared common goals for resolving the conflict — namely that Hormuz had to be reopened and Iran shouldn’t possess a nuclear weapon. China, like the US, was a signatory to the 2015 accord on curtailing Iran’s atomic program, which Trump abandoned during his first term.
China has backed Pakistan as the main go-between for the US and Iran. Beijing may play a quiet role in maintaining any truce between the two countries as its economic ties to Iran puts it in a position to influence Middle East peace talks.
Skepticism still persists on whether the US and Iran have reached a breakthrough in negotiations. Robert Pape, professor of political Science at the University of Chicago, said what’s been achieved is “not quite a memorandum of understanding” between the two sides.
“We have more a memorandum of confusion,” Pape told Bloomberg Television. “Do they actually agree on the terms, or are they saying they want between now and Friday to straighten it out?”
This report is auto generated from the Bloomberg news service. ThePrint holds no responsibility for its content.
Also Read: Oman Navy rescues 24 Indian crew members of sanctioned oil tanker hit by US missile