Speaker 1: Bloomberg Audio Studios, podcasts, radio news. For much of the
Speaker 1: past week, oil and gas traders have been bracing for
Speaker 1: a worst case scenario, and they're now watching it.
Speaker 2: Unfold around, effectively shutting down the Strait.
Speaker 1: Of hor Mooz.
Speaker 3: It is at a standstill, so no oil is going
Speaker 3: in or out.
Speaker 1: China's government telling the country's largest oil refiners to suspend
Speaker 1: exports of diesel and gasoline. The confrontation between the United
Speaker 1: States Israel in Iran has entered a volatile new phase,
Speaker 1: one that puts oil reserves and critical infrastructure directly in
Speaker 1: the crosshairs. Iran is widening his response now aiming to
Speaker 1: paralyze the economic lifeblood of this region oil and gas production.
Speaker 4: Very interesting announcement from the President saying that the US
Speaker 4: are looking to provide naval escorts and to lower insurance
Speaker 4: costs for any vessels and tankers looking to pass through
Speaker 4: the streets.
Speaker 1: The Strait of Hormose is one of the world's most
Speaker 1: critical choke points. As much as twenty percent of the
Speaker 1: world's oil passes through the strait each day, and it's
Speaker 1: remained effectively closed since the conflict began.
Speaker 5: Nobody can close the streets of homos for too long.
Speaker 5: So you close that, you have a global crisis.
Speaker 1: Verridin Fesher Raki is the founder and chairman of Energy
Speaker 1: consulting Group FGE.
Speaker 5: If you keep it closed in the price of oil,
Speaker 5: we'll go through the roof. The French and the British
Speaker 5: will surely get involved, and I think maybe Chinese get
Speaker 5: involved too. Everybody has to marry three get involved, because
Speaker 5: that is creating a crisis, worst possible recession, global recession.
Speaker 5: And Iran is just too small fish to be able
Speaker 5: to close the strait of hormos.
Speaker 1: But even if the fighting never reaches that worst case
Speaker 1: scenario for oil markets, countries across Asia, the world's biggest
Speaker 1: buyers of Middle Eastern energy, are bracing for potential shockwaves.
Speaker 2: Japan is very exposed, South Korea is exposed. China buys
Speaker 2: a lot of Iran oil, Taiwan, India, Pakistan has most
Speaker 2: of its guests coming from Qatar.
Speaker 1: Daniel tan Kate oversees Bloomberg's political and economic coverage in Asia.
Speaker 2: It's pretty much affecting every economy in Asia. Not just
Speaker 2: yet because it's still early days. But if you do
Speaker 2: have prolonged sustained rise in oil prices that is inherently
Speaker 2: going to affect most economies in Asia because they buy
Speaker 2: a lot of oil.
Speaker 1: This is the big Take Asia from Bloomberg News. I'm Wanha.
Speaker 1: Every week we take you inside some of the world's
Speaker 1: biggest and most powerful economies and we explore the markets, tycoons,
Speaker 1: and businesses that drive this ever shifting region. Today on
Speaker 1: the show, Asia's biggest economies react to war in the
Speaker 1: Middle East, how the Iran war is rippling through glowble
Speaker 1: oil markets, and which Asian economies are most at risk
Speaker 1: to a large scale disruption. Since last year, China has
Speaker 1: been factoring in the uncertainty surrounding Iranian oil, quietly stockpiling
Speaker 1: crude at onshore sites. While China buys up some ninety
Speaker 1: percent of Iran's oil, those barrels account for less than
Speaker 1: fifteen percent of Beijing's overall oil imports. Russia and Saudi
Speaker 1: Arabia remain China's biggest suppliers, and that's unlikely to change
Speaker 1: anytime soon. But there's a big reason why China is concerned.
Speaker 1: About half of its crude imports passed through the Strait of.
Speaker 5: Ormus twenty percent of the global supply crude oil and
Speaker 5: refined products go through the Straits of Hormones, Soaudis have
Speaker 5: a pipeline to the Red Sea of around two million
Speaker 5: partters per day. Abu Dhabi has a pipeline of about
Speaker 5: a million day and a half partus per day outside
Speaker 5: the Gulf, but beyond there are no other pipelines. Beyond
Speaker 5: that is only the Strese of Horbos.
Speaker 1: When the US and Israel attacked Iran late last week,
Speaker 1: China's response was immediate and pointed. My colleague Daniel ten Kate,
Speaker 1: who covers China's economy and political landscape for Bloomberg, says
Speaker 1: it underscored just how dependent China is on Gulf oil.
Speaker 2: Beijing has basically come out and opposed what's going on.
Speaker 2: We had very strong words from Chinese Foreign Minister Wangi.
Speaker 2: He called it unacceptable to openly kill the leader of
Speaker 2: a sovereign country and institute regime change. So that's very frank,
Speaker 2: very strong language from China opposing this. At the same time,
Speaker 2: they really want to calm things down. So after that statement,
Speaker 2: we had another statement from China saying that Iran also
Speaker 2: needed to respect the reasonable interests of its neighboring states.
Speaker 1: Iran's oil influence has diminished due to prolonged sanctions and
Speaker 1: limited foreign investment. Today, the country accounts for just about
Speaker 1: three percent of global oil supply, producing about three point
Speaker 1: three million barrels a day. Doctor Fesheraki, you're originally from
Speaker 1: Iran and you spent many years living and working there.
Speaker 1: Broadly speaking, how important is Iranian oil to the rest
Speaker 1: of the world.
Speaker 5: I any non production is three and a half million
Speaker 5: matters per day, but all the liquids combined are more
Speaker 5: than five million matters per day, so it's quite important.
Speaker 5: But the oil sales only go to China crude oil sales,
Speaker 5: so it is important only for China. But Chinese can
Speaker 5: replace the Iranian oil right away with other the distant cruds,
Speaker 5: except that they can't receive any discount. They have to
Speaker 5: pay the real market price for it. But it is
Speaker 5: not the case that somehow if the Rnian crude is
Speaker 5: not there, they would be damage to the Chinese security
Speaker 5: or fenergy supplies. Oil is available in the market.
Speaker 1: Thursday, China's government ordered its largest refiners to suspend exports
Speaker 1: of diesel and gasoline as the Middle East crisis deepens.
Speaker 2: China. They want to make sure that their domestic interests
Speaker 2: are not hurt first. That's the top priority, and that
Speaker 2: means getting the oil to flow. Now, if the oil
Speaker 2: is flowing and you have this low level kind of
Speaker 2: fighting going on where the US has to devote a
Speaker 2: lot of attention and resources to the Middle East and
Speaker 2: military assets to the Middle East, but there's not huge
Speaker 2: economic disruption, I think that's the scenario that China would
Speaker 2: not mind seeing.
Speaker 1: If the oil and Iran couldn't flow to China, what
Speaker 1: would that mean for China.
Speaker 5: China can just buy from somebody else. China has the
Speaker 5: money and the capability financial ability to pay. Please remember
Speaker 5: in China, it Anian oil is not used by any
Speaker 5: of the major Chinese companies, so sign a pick cut
Speaker 5: China or Asino. They don't touch it any imprude. Only
Speaker 5: the teapots use it. So if the teapots cannot get
Speaker 5: you know, most of these teapots or uneconomic, and the
Speaker 5: Chinese government wants to close them anyway is a matter
Speaker 5: of time, so they don't have it, they may close earlier,
Speaker 5: and it's better for the economy of China because Chinese
Speaker 5: oil companies have so much spare capacity, they don't really
Speaker 5: need them. And the Iranian crew doesn't go into the
Speaker 5: big defineries in China because the big defineries around the
Speaker 5: stock market, and if you're in the stock market, you
Speaker 5: don't want to go. At least the US sanctions.
Speaker 1: We've seen volatility in the energy markets, which was to
Speaker 1: be expected, but it's been measured. What's something that could
Speaker 1: happen that would send oil north of one hundred dollars
Speaker 1: a barrow, which seems to be kind of the line
Speaker 1: that everybody is watching for.
Speaker 5: I think two events can make that happen.
Speaker 3: One is that if there is an attack on the
Speaker 3: oil fields run for example, in Ua, the attack to
Speaker 3: buy which is a commercial hub, so they hit the hotels,
Speaker 3: they hit residential areas, but they haven't hit the oil
Speaker 3: fields of Abudabi, which is so close to them that
Speaker 3: they could destroy a lot of them overnight.
Speaker 5: They have hit a Saudi refinery, but they haven't hit
Speaker 5: the oil fields.
Speaker 3: Still, if you hit the oil fields that you interfere
Speaker 3: with the flow of oil, then the prices can jump
Speaker 3: very fast.
Speaker 5: If you close access to the straits of Hormos for
Speaker 5: more than a month, the prices can jump hundred dollars
Speaker 5: or more.
Speaker 1: Now, the APAC region where we are now is deeply
Speaker 1: dependent on Middle Eastern oil. China, for example, buys eighty
Speaker 1: percent ninety percent of Iranian crude, Japan imports nearly all
Speaker 1: of its oil from the Middle East, and India gets
Speaker 1: roughly half of its oil from the region. Singapore has
Speaker 1: said it may reassess its GDP depending on how long
Speaker 1: this conflict lasts. And I wonder when you look at
Speaker 1: the region broadly, where do you see the biggest vulnerabilities.
Speaker 5: Everything is dependent on the price. If the price of
Speaker 5: oil is nineteen hundred dollars, then GDP they go down.
Speaker 5: But at the price of seventy seven, seventy eight dollars,
Speaker 5: no impact on GDP. Even at eighty dollars. I mean,
Speaker 5: we've had eighty dollars oil a long time and it
Speaker 5: was totally absorbed. Even in India, eighty dollars oil is
Speaker 5: easily absorbable. In China, eighteen ninety dollars is easily absorbable.
Speaker 5: The issue is that if there is a lack of
Speaker 5: supply so that the economy cannot be run and the
Speaker 5: prices go to the roof, Yes, it has an impact,
Speaker 5: but I think people are jumping the gun out of
Speaker 5: abundance of caution.
Speaker 1: Now, India is hugely reliant on Middle Eastern crude. At
Speaker 1: what oil price does this war become a real problem
Speaker 1: for India.
Speaker 5: Well, India has done a study several years ago that
Speaker 5: eighty do barrel oil is okay with them. They can manage.
Speaker 5: If that was three years ago, I think today eighty
Speaker 5: five dollars ninety dollars would be tolerable. So India has
Speaker 5: a good ability to pay. There is a huge amount
Speaker 5: of strategic petroleum reserves in the world in the AACD countries,
Speaker 5: in the United States, China has a huge amount of
Speaker 5: strategic reserves. Japanese have two hundred and seventy days of
Speaker 5: the strategic reserve, so they can go for a whole
Speaker 5: year without any imports. So nobody else in the world
Speaker 5: has that level of cover. And the Saudis and Ua
Speaker 5: have huge reserves of oil inside of Japan that they
Speaker 5: are obligated to sell to Japan first if there is
Speaker 5: a global crisis. The Koreas have far less reserves, but
Speaker 5: they can manage. These reserves have not been opened yet.
Speaker 5: And then the first indication for you to find out
Speaker 5: if this is serious, is that if this TT reserves
Speaker 5: are ordered to be opened.
Speaker 1: So what scenario does Beijing hope to see out of
Speaker 1: this war? And could the US's actions be driving American
Speaker 1: allies in Asia closer to present chijin Ping. That's coming
Speaker 1: up after the break. Later this month, Trump is set
Speaker 1: to sit down with Chinese present chijin Ping at a
Speaker 1: major summit, and their teams are already laying the groundwork.
Speaker 1: US Treasury Secretary Scott Bessant and Chinese Vice Premier Halufhun
Speaker 1: are expected to gather in Paris in a few weeks
Speaker 1: to hash out possible deals. And despite recent US strikes
Speaker 1: in Iran, Bloomberg's Daniel ten Kate says Washington and Beijing
Speaker 1: have plenty of reasons to keep the conversation going.
Speaker 2: If you look at the economics of it. Yes, China
Speaker 2: eyes a lot of Iran's oil. It's definitely more important
Speaker 2: to Iran than China, and China is pretty diversified in
Speaker 2: its energy mix. But if they lose the entire Gulf,
Speaker 2: that's a much bigger problem for China. I think the
Speaker 2: optics depend a lot on what happens in the next month.
Speaker 2: I mean, Trump has taken out two leaders in two
Speaker 2: months of countries that were friendly with China, and so
Speaker 2: oil could be hurt. You could be seeing more disruption
Speaker 2: the global economy. We're seeing Iran still targeting a lot
Speaker 2: of economic infrastructure in the region, targeting US embassies, targeting
Speaker 2: oil and gas infrastructure, blocking ships in the Strait of Hormuz.
Speaker 2: Trump threatening harder hits against the Iranian regime. So where
Speaker 2: are we in a month. I don't know. I mean,
Speaker 2: I think that's kind of a big question for China
Speaker 2: as well. Would they like to separate the two issues
Speaker 2: and make it go forward, Yes, I think they would,
Speaker 2: But optically, do you want to act really chummy with Trump?
Speaker 2: So I think that's the calculation there. How much do
Speaker 2: they try and signal to the rest of the world
Speaker 2: and to their own population and everything else about what
Speaker 2: they think this means for them.
Speaker 1: How does the US's latest actions We've got this in
Speaker 1: Venezuela earlier this year, affect its relationship with its allies
Speaker 1: in the region. Do you think it helps position China
Speaker 1: as the more reliable partner?
Speaker 2: So you could see a lot of traditional US allies
Speaker 2: at the very least, they're nervous about what's going on,
Speaker 2: and they're uneasy about it, and we see that publicly.
Speaker 2: What they can do about it is another question. You know,
Speaker 2: there's not you still need the US market. The US
Speaker 2: is still the predominant military power, so from the White
Speaker 2: House's point of view, it's probably like, well, who cares,
Speaker 2: what are they going to do anyway? But over the
Speaker 2: long term that does erode American soft power. It's making
Speaker 2: countries look around beyond the US to different partners, and
Speaker 2: China is one of them, and it does kind of
Speaker 2: raise questions like, when you do need those partners the
Speaker 2: next time, when you're under the gun in some way,
Speaker 2: are they going to be there for you in the
Speaker 2: way that you want them to be? And that remains
Speaker 2: an open question.
Speaker 1: What about politically? Where else in this region does Iran
Speaker 1: have close ties?
Speaker 2: Iran maintains fairly good ties with the region, and Asia
Speaker 2: generally likes to maintain good ties with Iran. So India,
Speaker 2: for instance, had quite good ties, and they've invested a
Speaker 2: lot in a port called Chabahar, which was meant to
Speaker 2: provide an alternative route for Afghanistan to send goods out
Speaker 2: so it didn't have to go through Pakistan. For instance,
Speaker 2: a lot of countries here would love to buy Iranian
Speaker 2: oil and probably invest in Iran as well well, but
Speaker 2: they also don't want to fall a foul of US sanctions.
Speaker 2: So if you rely on dollar trade and want access
Speaker 2: to dollars, then you have to play ball, and so
Speaker 2: most Asian economies are doing that. They have no inherent
Speaker 2: dislike of Iran. I'm sure they don't like Iran pursuing
Speaker 2: a nuclear weapon, but they also probably would not support
Speaker 2: regime change, and many have expressed concern about what has
Speaker 2: happened and whether it's compliant with international law. Japan is
Speaker 2: an interesting case too, because they've traditionally tried to position
Speaker 2: themselves as a kind of a go between between the
Speaker 2: US and Iran. We've seen the Iranian ambassador, for instance,
Speaker 2: hold a press briefing in Tokyo. They've also done that
Speaker 2: in Indonesia, where Proboo, the leader there, has offered himself
Speaker 2: as a mediator, and of course he's close to Trump
Speaker 2: and joined his Board of Peace and considering sending troops
Speaker 2: to Gaza. So basically everyone in Asia wants to get
Speaker 2: along with both countries. They want to keep the oil
Speaker 2: flowing and they want to end this thing as quickly
Speaker 2: as possible.
Speaker 1: And I think what's also interesting is that the Middle
Speaker 1: Eastern hubs are actually quite important to Asia in a
Speaker 1: way that you wouldn't necessarily think at first. But Middle
Speaker 1: Eastern hubs, you know, do link Asia to Europe, to
Speaker 1: Africa and the US. I mean, certainly when you look
Speaker 1: at flights, thousands of flights were canceled after UAE airports
Speaker 1: closed for security reasons. How damaging is this to Asia's
Speaker 1: connectivity and to commerce.
Speaker 2: Certainly if it's prolonged, it's going to change the equation
Speaker 2: for how people get around here. I'm sure everyone knows
Speaker 2: people who are stuck in hotels in Dubai right now.
Speaker 2: And that's one example of how connected and how important
Speaker 2: the Middle East is as a hub, as a transit
Speaker 2: hub in particular. There's all sorts of questions on logistics
Speaker 2: right now that are just being worked out. I think
Speaker 2: we're in the emerging and see stage right now, where
Speaker 2: people can sort of deal with it for a week
Speaker 2: or two and get on with life if it ends quickly.
Speaker 2: But if you're looking at prolonged disruptions to flights, to shipping,
Speaker 2: to oil supply, then your supply chains are gonna need
Speaker 2: to be reworked, and anytime you do that, it's more expensive,
Speaker 2: so that means people are going to be paying more
Speaker 2: for a lot of various goods and travel.
Speaker 1: This is The Big Take Asia from Bloomberg News. I'm wanha.
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Speaker 1: Thanks for listening. To see you next time.