Latest / Best of: Features / Oil prices are high but could be much worse. Trump has China's Xi to thank for that

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Oil prices are high but could be much worse. Trump has China's Xi to thank for that · Best of: Features

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  Oil prices are high but could be much worse. Trump has China
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  Xi to thank for that. Written by Amer Madani. This article is
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  being read by an automated voice, generated by Everlet. Washington, the AP,
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  it could be much worse. When President Donald Trump launched his war
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  against Iran in late February, energy analysts issued dire warnings that oil
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  prices could more than double during a protracted conflict and urged investors
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  and motorists to buckle up for a bumpy ride. The war grinds
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  on, and oil prices certainly remain volatile, but the most dire projections
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  have not yet come to pass six months into a conflict that.
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  Has no end in sight. Chinese President Xi Jinping, who is making
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  a much anticipated state visit to Washington next week, could make a
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  credible argument that the world has his country's energy strategy to thank
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  for that. It's unclear how much the two leaders will discuss Iran
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  during the visit, which comes as Trump's Republican Party faces pressure from
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  voters over high gasoline prices, and as China's buffer is being further
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  tested as the conflict in the Middle East spreads. Trump, who has
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  sought to keep a fragile trade truce with Beijing intact, has been
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  careful in public comments about differences with Xi over the country's relationship
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  with Iran. We've been free riding off Beijing in a weird way,
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  said Rosemary Kalanick, director of them.
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  Middle East programme at Defence Priorities, a Washington think tank. China's doing
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  it because they understand that they're on the train that Trump is
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  driving off a cliff. If oil prices go way up, that hurts
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  the global economy. If it hurts the global economy, it hurts them.
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  China stockpiles helped Xi weather the storm far. Beijing spent years and
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  billions of dollars amassing the world's largest oil stockpile, building its strategic
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  reserve to about one point four billion barrels by the end of
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  last year, according to the US Energy Information Administration's estimates. To protect
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  China from foreign supply risks, Xi made energy self reliance a part
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  of the country's latest five year plan. Drawing from the massive stockpile
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  allowed China, the world's second biggest oil consumer and Iran's top buyer,
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  to dramatically cut crude imports once the US and Israel began their
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  bombardment, and Tehran effectively closed the Strait of Hormuz. The country was
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  also helped by its shift toward electric vehicles in recent years, and
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  increasingly tapping into other energy alternatives. China's oil import diet in turn
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  helped ease global demand, softening the upward price effects for the United
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  States, Europe, and beyond. The Chinese deserve credit, said retired U.S. Navy
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  Rear Admiral Mark Montgomery, an analyst at the Foundation for Defense of
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  Democracies, a hawkish Washington think tank. The did in ten years, what
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  took us twenty five years after the nineteen seventy three oil crisis
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  to do, really build a kind of strategic petroleum reserve that could
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  allow you to weather this. But that resilience faces new challenges. Attacks
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  by Iran backed militias this month led Saudi Arabia to temporarily shut
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  a vital pipeline that transports crude across the kingdom to ports on
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  the Red Sea. The Yemen based Houthis have also seized two strategic
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  islands in the southern Red Sea, bolstering the Iran backed rebels ability
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  to disrupt a key maritime shipping route. Planned talks among Gulf nations
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  focused on reopening the Strait of Hormuz, which were supposed to take
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  place earlier this week, have also been put on hold. Before he
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  meets Xi, Trump is set to meet Tuesday with leaders of they
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  Gulf Cooperation Council in New York, on the sidelines of the annual
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  United Nations General Assembly. The group includes Saudi Arabia, the United Arab
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  Emirates, Qatar, Oman, Kuwait, and Bahrain. Oil industry experts say the moment
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  remains tenuous. Analysts at Bank of America last week forecast oil at
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  eighty three dollars a barrel for the second half of the year
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  in light of more persistent disruptions to Hormuz, but said they still
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  expected shipping through the Strait to gradually pick up. But if violence
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  escalates and keeps a chokehold on traffic, prices could reach ninety five
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  dollars to one hundred and twenty dollars a barrel, while damage to
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  major energy infrastructure could produce spikes of up to one hundred fifty
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  dollars a barrel, The analysts wrote. BrintCrude averaged about sixty nine dollars
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  per barrel last year and currently is hovering around one hundred dollars.
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  Brint crude briefly peaked in late April, touching one hundred twenty six
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  dollars. How China has weathered the volatile oil market caused by Trump's
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  war is ultimately seen by Beijing as a vindication of Xi's last
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  five year plan and his focus on self reliance, said Jonathan Xin,
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  a former senior CIA analyst who is now at the Brookings Institution.
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  Deep differences between Trump and Xi on Iran persist. The war in
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  Iran and its impact on the global economy is expected To
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  be on the agenda for the Trump Shi talks, but the prospects
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  of the world's two biggest powers coming up with a breakthrough appear
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  dim. Over the course of the conflict, the Trump administration has faced
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  resistance when urging Beijing to use its considerable economic leverage to press
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  the Islamic Republic to end the war and reopen the Strait of
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  Hormuz. Chinese officials who have expressed strong opposition to the US war
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  also have bristled at more recent administration threats to ratchet up economic
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  pressure on nations and entities still doing business with Iran. To be
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  certain, analysts say there's little altruism in how China came to sit
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  on its massive stockpile of oil. Experts believe Beijing was driven by
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  contingency planning for potential military action to take over the self ruled
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  island of Taiwan, which China considers its own territory. Tapping the reserves
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  now has been far from ideal for Beijing, but seeing global oil
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  prices skyrocket was not ideal either. Trump treads carefully on differences with
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  China over Iran, but The leaders last met in Beijing just four
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  months ago, and could meet twice more later this year. After the
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  talks in May, Trump claimed she agreed with him that a nuclear
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  armed Iran is a bad idea and that the Strait of Hormuz
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  must be reopened. Chinese officials have neither affirmed nor denied Trump's telling
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  of the private conversation. The US administration has also warned China not
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  to aid Iran's military effort, but earlier this week, Trump downplayed a
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  Wall Street Journal report that Chinese entities had supplied Tehran with satellite
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  images of a Jordanian military base ahead of an Iran strike in
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  July that killed three U.S. Soldiers working there. You know, when the
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  say that China spies on us, I say you're right and we
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  spy on them too, Trump told reporters. Trump, at the outset of
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  the war, called the conflict a little excursion than would last a
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  matter of weeks. He also has repeatedly predicted that oil prices will
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  quickly plummet once the conflict ends. Less than three months into the
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  conflict, he even declared everybody was wrong, because the most dire projections
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  for oil prices didn't come to pass. They White House did not
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  respond to queries on whether Trump credits China's actions with helping keep
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  oil prices from hitting the worst case levels. But energy analysts credit
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  Beijing's slashing imports as having the single greatest impact on moderating prices
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  since the start of the war. China's crude imports averaged just eight
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  point one million barrels per day in the second quarter. That's almost
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  four million barrels per day, or thirty two percent lower than in
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  the first three months of the year, according to US data. It's
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  remarkable how China managed the market, said Michael Lynch, president of Strategic
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  Energy and Economic Research, a firm providing consulting services and analysis in
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  the oil and gas industry. They didn't panic, and by turning to
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  their inventories they kept the price down for everybody.