Oil buyers in Asia are increasingly wary that Iraq’s entanglement in the worsening dispute between the US and Iran could disrupt shipments from one of their key Middle East suppliers.
At least five buyers from China to India said the loss of Iraqi barrels would be particularly challenging because of already-tight supplies of the quality of oil exported by Opec’s second-biggest producer, according to people familiar, who asked not to be identified as they’re not authorised to speak to the media.
While there’s been no material threat to Iraq’s oil production, US President Donald Trump late Sunday threatened heavy sanctions against the country if it followed through on a vote by parliament to expel foreign forces from its territory. Trade measures against Iran have already reduced shipments from the Islamic Republic to a trickle.
Iraq has boosted output about 50% over the past five years and has been among the most reliable Middle East suppliers to Asia, but it’s been drawn into the escalating dispute after Iran’s top commander was killed on its soil near Baghdad’s international airport on Friday. Iraq’s parliament denounced the drone strike as a violation of its sovereignty.
Iraq’s flagship Basrah Light is a medium-sour crude, a grade that’s particularly sought after by Asian refineries and in relatively short supply because of US sanctions on Iran and falling Mexican production. Basrah Heavy crude is a lower-quality type oil that’s also in demand because of restrictions on alternative producer Venezuela.
“China has been relying on Iraqi supply quite heavily, with the country among the top three suppliers over the past few months,” said Li Li, a Shanghai-based analyst at commodities researcher ICIS-China.
Iraq exported 3.82mn barrels a day of crude last month, with China, India, South Korea and Japan among its top customers, according to ship-tracking data compiled by Bloomberg. The Asian buyers surveyed by Bloomberg said they can’t completely shift away from Iraqi crude because it forms part of their baseload volumes.
Oil prices jumped more than 5% after the American airstrikes last week on fears that a wider conflict could disrupt supply from the world’s most important producing region. As it stands, Asian refiners are already paying up for medium and heavy-sour crude varieties due to their scarcity.
India imported almost a quarter of its oil through Iraq from January to November 2019, according to data from the commerce and industry ministry.
In November, China imported 5.8mn tonnes of crude from Iraq, its third largest supplier after Saudi Arabia and Russia, according to customs data. The Asian nation bought 547,758 tonnes of crude from Iran – a third of the average in the first-half of 2019 – and bought no oil from Venezuela.
Brent crude hit $70 a barrel on Monday, the highest level since attacks on Saudi oil installations in September that crimped global supply by about 5%. Unlike three months ago, the hostilities between the US and Iran are yet to yield any actual impact on supply, and buyers in Asia are keeping a watching brief.
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