This Day On The Street
Continue to site right-arrow
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

Iranian Oil Threats a Win-Win for China

Stocks in this article: BP SD WLL SU CNQ HFC WNR

NEW YORK ( TheStreet) -- China could win big oil concessions from Iran as the Islamic Republic faces the loss of major oil revenue from the tightening Western sanctions over its controversial nuclear program.

China currently buys one-third of Iran's oil exports, according to Rachel Shoemaker, head of Asia forecasting at specialist intelligence agency Exclusive Analysis, and losing a major customer like China, as other customers bow to Western pressure, is something that Iran simply cannot afford. Oil is a major source of the country's revenue that it needs both to keep the economy going and fund social programs required to keep its population content.

"Iran still needs the revenue generated from selling oil to run its economy," says Argus Research analyst Philip Weiss.

Right now, Iran is already at risk of losing this major customer, despite their important political ties, as China comes under mounting pressures by the West to reduce its imports of Iranian oil -- as are other important Asian players such as India, Japan and South Korea.

This, as the U.S. increasingly targets Iranian banks that handle such trades and urges countries such as China to seek alternate crude supplies, which the U.S. is trying to convince the United Arab Emirates and Saudi Arabia to provide, according to Shoemaker.

Today, Japan's finance minister Jun Azumi said that Japan will take concrete steps to cut oil imports from Iran.

Ultimately, all cards could fall in China's favor.

Shoemaker and her colleague, Teymur Huseynov of Exclusive Analysis' head of global energy consulting, for instance, say that Iran is likely to reduce official sales prices to the Asia-Pacific to try to beat offers from Saudi Arabia, and possibly Iraq.

"China is happy to get alternate supply sources if the U.S. will arrange them, while also benefitting from better prices negotiated with Iran -- this is the ideal position for China as it's a double win and provides more energy sources to mitigate supply issues," says Shoemaker.

Nic Brown, head of commodity research at Natixis says that Iran is already showing some signs of yielding, as it has cut prices for February crude deliveries to Asian buyers by $2 a barrel or more versus January prices.

"China is fantastic at manipulating market situations that plays into their hands" says Rich Ilczyszyn, Chief Market Strategist and Founder of

Still, China's negotiating power could eventually hit a limit, especially if Iran were to retaliate against sanctions through the shutdown of the crucial Strait of Hormuz that allows the passage of as many as 20 million barrels of crude oil a day on tankers.

"If oil prices rally to $125 to $150, Iran will still command a good price for their oil and they have plenty to sell," says Carl Larry, president of Oil Outlooks and Opinions. "Iran has been busy storing a lot of their production on ships and are ready to move. These ships are outside the Persian Gulf so they would not be disrupted by any sort of conflict or disruption in the Strait of Hormuz."

A member of the Iranian military takes position in a drill on the shore of the sea of Oman, on Friday, Dec. 30, 2011. Iran's navy chief has reiterated for a second time in less than a week that his country can easily close the strategic Strait of Hormuz at the mouth of the Persian Gulf, the passageway through which a sixth of the world's oil flows.

Market rumors says that Iran has about 4 million to 8 million barrels on floating storage, says Larry.

Brown, head of commodity research at Natixis, also agrees that China would be able to command lower prices only to a certain extent, but with the view that "it is very difficult to implement a water-tight embargo."

1 of 2

Select the service that is right for you!

Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!


DOW 17,804.80 +26.65 0.15%
S&P 500 2,070.65 +9.42 0.46%
NASDAQ 4,765.38 +16.9840 0.36%

Brokerage Partners

Rates from

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs