War in Iran Is Exposing Oil Risks Across Asia

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2:07One that puts oil reserves and critical infrastructure directly in the crosshairs. Iran is widening its response, now aiming to paralyze the economic lifeblood of this region, oil and gas production. Very interesting announcement from the president saying that the US are looking to provide naval escorts and to lower insurance costs for any vessels and tankers looking to pass through the straight. The straight of her moves is one of the world's most critical choke points. As much as 20% of the world's oil passes through the straight each day. And it's remained effectively closed since the conflict began. Nobody can close this straight of home for too long. So you close that, you have a global crisis. Faradin Feshiraki is the founder and chairman of Energy Consulting Group FGE. If you keep it closed in the price of oil, we will go through the roof. The French and the British will surely get involved. And I think maybe Chinese get involved too. Everybody has to be able to get involved because that is creating a crisis worst possible recession, global recession.

3:11And Iran is just too small fish to be able to close the straight of worlds. But even if the fighting never reaches that worst-case scenario for oil markets, countries across Asia, the world's biggest buyers of Middle Eastern energy are bracing for potential shockwaves. Japan is very exposed, South Korea is exposed, China buys a lot of Iran's oil, Taiwan, India. Pakistan has most of its guests coming from Qatar. Daniel Tanki oversees Bloomberg's political and economic coverage in Asia. It's pretty much affecting every economy in Asia, not just yet, because it's still early days. But if you do have prolonged sustained rise in oil prices, that is inherently going to affect most economies in Asia because they buy a lot of oil. This is the Big Tech Asia from Bloomberg News, I'm Juan Ha.

4:15Every week we take you inside some of the world's biggest and most powerful economies, and we explore the markets, tycoons, and businesses that drive this ever-shifting region. Today on the show, Asia's biggest economies react to war in the Middle East. How the Iran war is rippling through global oil markets, and which Asian economies are most at risk to a large-scale disruption. Since last year, China has been factoring in the uncertainty surrounding Iranian oil, quietly stockpiling crude at onshore sites. While China buys up some 90% of Iran's oil, those barrels account for less than 15% of Beijing's overall oil imports. Russia and Saudi Arabia remain China's biggest suppliers, and that's unlikely to change anytime soon. But there's a big reason why China's concerned about half of its crude imports pass through the straight-of-our-mousse. 20% of the global supply crude oil and refined products go through the streets of Hormuz.

5:20Saudis have a pipeline to the Red Sea of around 2 million dollars per day, Abu Dhabi has a pipeline of about a million and a half per day outside the Gulf. But beyond that, there are no other pipelines. Beyond that is only the streets of Hormuz. When the U.S. and Israel attacked Iran late last week, China's response was immediate and pointed. My colleague Daniel Tenkeit, who covers China's economy and political landscape for Bloomberg, says it underscored just how dependent China is on Gulf oil. Beijing has basically come out and opposed what's going on. We had very strong words from Chinese foreign minister Wang Yi. He called it unacceptable to openly kill the leader of a sovereign country and institute regime change. So that's very frank, very strong language from China opposing this. At the same time, they really want to calm things down. So after that statement, we had another statement from China saying that Iran also needed to respect

6:25the reasonable interests of its neighboring states. Iran's oil influence has diminished due to prolonged sanctions and limited foreign investment. Today, the country accounts for just about 3% of global oil supply, producing about 3.3 million barrels a day. Dr. Feshiraki, you're originally from Iran and you spent many years living and working there. Broadly speaking, how important is Iranian oil to the rest of the world? Iranian oil production is 3.5 million per day, with all the liquids combined on more than 5 million per day. So it's quite important. But the oil sales only go to China, kudo sales. So it is important only for China. But Chinese can replace the Iranian oil right away without the militant crudes, except that they can't receive any discount. They have to pay the real market price for it. But it is not a case that somehow, if the Iranian crude is not there, there would be a damage to the Chinese security or financial surprise.

7:29Oil is available in the market. On Thursday, China's government ordered its largest refiners to suspend exports of diesel and gasoline as the Middle East crisis deepens. China, they want to make sure that their domestic interests are not hurt first. That's the top priority. And that means getting the oil to flow. Now, if the oil is flowing, and you have this low level kind of fighting going on, where the US has to devote a lot of attention and resources to the Middle East and military assets to the Middle East. But there's not huge economic disruption. I think that's a scenario that China would not mind seeing. If the oil in Iran couldn't flow to China, what would that mean for China? China can just buy from somebody else. China has the money and the capability for financial ability to pay. Please remember, in China, Iranian oil is not used by any of the major Chinese companies. So, China paid for China and China. They don't touch Iranian crude. Only the tea pots use it.

8:30So, if the tea pots cannot get them, you know, most of these tea pots are un-economic, and the Chinese government wants to close them anyway. It's a matter of time. So, they don't hide, they may close earlier, and it's better for the economy of China, because Chinese oil companies have so much spare capacity. They don't really need them. And the Iranian crude doesn't go into the big refineries in China, because the big refineries are on the stock market. And if you're in the stock market, you don't want to go at least to U.S. sanctions. We've seen volatility in the energy markets, which was to be expected. But it's been measured. What's something that could happen that would send oil north of $100 a barrel, which seems to be kind of the line that everybody is watching for? I think two events can make that happen. One is that if there is an attack on the oil fields, Iran, for example, in UAE, the attack Dubai, which is a commercial hub.

9:30So, they hit the hotels, they hit the residential areas, but they haven't hit the oil fields of Abu Dhabi, which is so close to them that they could destroy a lot of them overnight. They have the hit Saudi refinery, but they haven't hit the oil fields, still. If you hit the oil fields and you interfere with the flow of oil, then the prices can jump very fast. If you close the access to the streets of Hormuz for more than a month, the prices can jump under dollars or more. Now, the APEC region where we are now is deeply dependent on Middle Eastern oil. China, for example, buys 80%, 90% of Iranian crude, Japan imports nearly all of its oil from the Middle East, and India gets roughly half of its oil from the region. Singapore has said it may reassess its GDP, depending on how long this conflict lasts.

10:30And I wonder when you look at the region broadly, where do you see the biggest vulnerabilities? Everything is turning on the price. If the price of oil is $9,800, then GDP may go down. But at the price of $77, $78, no impact on GDP. Even at $80, I mean, we've had $80 oil a long time, and it was totally absorbed even in India. $80 oil is easily absorbed. In China, $18,90 is easily absorbed. The issue is that if there is a lack of supply so that the economy cannot be run, and the prices go through the roof, yes, it has an impact. But I think people are jumping the gun out of abundance of caution. Now, India is hugely reliant on Middle Eastern crude. At what oil price does this war become a real problem for India? Well, India has done a study several years ago that $80 oil is okay with them.

11:34They can manage. If that was three years ago, I think today $85, $90 would be tolerable. So India has a good ability to pay. India is a huge amount of strategic petroleum reserves in the world. In the IEA, OACD countries, in the United States, China has a huge amount of strategic reserves. Japanis have 270 days of strategic reserves. So they can go for a whole year without any imports. So nobody else in the world has that level of cover. And the Saudis and UAE have huge reserves of oil inside of Japan that they are obligated to sell to Japan first if there is a global crisis. The Koreas have far less reserves, but they can manage. These reserves have not been opened yet. And then the first indication for you to find out if this is serious

12:38if this fatigue reserves are ordered to be opened. So what scenario does Beijing hope to see out of this war? And could the U.S.S. actions be driving American allies in Asia closer to President Xi Jinping? That's coming up after the break. So there's a lot of noise about AI, but times too tight for more promises. So let's talk about results. At IBM, we work with our employees to integrate technology right into the systems they need. Now, a global workforce of 300,000 can use AI to fill their HR questions, resolving 94% of common questions. Not noise. Proof of how we can help companies get smarter by putting AI where it actually pays off. Deep in the work that moves the business. Let's create smarter business, IBM. If you follow markets, you know the value of long-term thinking. You plan, you diversify, you prepare for volatility.

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14:39Learn more at Adobe.com slash do that with Acrobat. Later this month, Trump is set to sit down with Chinese President Xi Jinping at a major summit. And their teams are already laying the groundwork. U.S. Treasury Secretary Scott Besant and Chinese Vice Premier Ha Lufeng are expected to gather in Paris in a few weeks to hash out possible deals. And despite recent U.S. strikes on Iran, Bloomberg's Daniel Ten Kate says Washington and Beijing have plenty of reasons to keep the conversation going. If you look at the economics of it, yes, China lies a lot of Iran's oil. It's definitely more important to Iran than China. China is pretty diversified in its energy mix. But if they lose the entire Gulf, that's a much bigger problem for China. I think the optics depend a lot on what happens in the next month.

15:41I mean, Trump has taken out two leaders in two months of countries that were friendly with China. And so oil could be hurt. You could be seeing more disruption in the global economy. We're seeing Iran still targeting a lot of economic infrastructure in the region, targeting U.S. embassies, targeting oil and gas infrastructure, blocking ships in the straight of Hormuz, Trump threatening harder hits against the Iranian regime. So where are we in a month? I don't know. I think that's kind of the big question for China as well. Would they like to separate the two issues and make it go forward? Yes, I think they would. But optically, do you want to act really chummy with Trump? So I think that's the calculation there. How much do they try and signal to the rest of the world and to their own population and everything else about what they think this means for them? How does the U.S. latest actions, we've got this in Venezuela earlier this year,

16:42affect its relationship with its allies in the region? Do you think it helps position China as the more reliable partner? So you could see a lot of traditional U.S. allies at the very least they're nervous about what's going on and they're uneasy about it and we see that publicly. What they can do about it is another question. You know, you still need the U.S. market. The U.S. is still the predominant military power. So from the White House's point of view, it's probably like, well, who cares? What are they going to do anyway? But over the long term, that does erode American soft power. It's making countries look around beyond the U.S. to different partners and China is one of them. And it does kind of raise questions like, when you do need those partners the next time, when you're under the gun in some way, are they going to be there for you in the way that you want them to be? And that remains an open question. What about politically, where else in this region does Iran have close ties?

17:46Iran maintains fairly good ties with the region and Asia generally likes to maintain good ties with Iran. So India, for instance, had quite good ties and they've invested a lot in a port called Chabahar, which was meant to provide an alternative route for Afghanistan to send goods out so it didn't have to go through Pakistan, for instance. A lot of countries here would love to buy Iranian oil and probably invest in Iran as well. But they also don't want to fall afoul of U.S. sanctions. So if you rely on dollar trade and want access to dollars, then you have to play ball. And so most Asian economies are doing that. They have no inherent dislike of Iran. They don't like Iran pursuing a nuclear weapon, but they also probably would not support regime change. And many have expressed concern about what has happened and whether it's compliant with international law. Japan is an interesting case too,

18:46because they've traditionally tried to position themselves as a kind of a go-between between the U.S. and Iran. We've seen the Iranian ambassador, for instance, hold a press briefing in Tokyo. They've also done that in Indonesia, where Proboa, the leader there, has offered himself as a mediator and of course he's close to Trump and joins his board of peace and considering sending troops to Gaza. So basically everyone in Asia wants to get along with both countries. And they want to keep the oil flowing and they want to end this thing as quickly as possible. And I think what's also interesting is that the middle eastern hubs are actually quite important to Asia in a way that you wouldn't necessarily think at first. But middle eastern hubs do link Asia to Europe to Africa and the U.S. I mean, certainly when you look at flights, thousands of flights were canceled after UAE airports closed for security reasons. How damaging is this to Asia's connectivity and to commerce?

19:50Certainly if it's prolonged, it's going to change the equation for how people get around here. I'm sure everyone knows people who are stuck in hotels and Dubai right now. And that's one example of how connected and how important the Middle East is as a hub, as a transit hub in particular. There's all sorts of questions on logistics right now that are just being worked out. I think we're in the emergency stage right now where people can sort of deal with it for a week or two and get on with life if it ends quickly. But if you're looking at prolonged disruptions to flights, to shipping, to oil supply, then your supply chains are going to need to be reworked. And any time you do that, it's more expensive. So that means people are going to be paying more for it. A lot of various goods and travel. This is The Big Take Asia from Blueburg News. I'm Juan Ha. To get more from The Big Take and unlimited access to all of Blueburg.com,

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