ONS: Analysts say China plays key role in MENA oil trade, despite region’s instability

STAVANGER -- One thing that became clear in one of the Tuesday morning sessions at ONS is that China remains an important oil trading partner and lynchpin of stability for the MENA (Middle East/North Africa) region. In the session entitled, “The Lego Blocks of Energy and Geopolitics,” two analysts explained the relationship of China to the region, and also the stability, or lack thereof, among some key oil producers.

In her presentation, Dr. Florence Eid-Oakden, CEO and chief economist at Arabia Monitor, noted that the Sino-Arab trade growth had been averaging 18.6% per annum before the oil price drop of 2014. “Now, after a period of retraction, that trade relationship is showing resilience,” said Eid-Oakden. Particularly problematic, after the U.S. reinstituted sanctions, is the trading relationship between China and Iran. “Regaining 2014 trade levels could take awhile,” explained Eid-Oakden. “The question is what happens to trade between China and Iran, given the new sanctions. It’s complicated, because China today is different from the China of 2009. China needs to be integrated into the world economy.”

Eid-Oakden postulated that Saudi Arabia could become a net beneficiary of the situation, if Iranian exports to China decline. “And let us not forget, in the Sino-Saudi relationship, the additional petrochemicals opportunity.”

Meanwhile, as China wrestles with the problem of where to get its oil from, among the various sources in the MENA region, there is another problem, said Helima Croft, and that is the stability of a number of MENA producers, themselves. Croft is managing director and global head of Commodity Strategy at RBC Capital Markets. She painted a picture of a very chaotic roster of oil-producing countries.

“We expect that north of 1.0 MMbpd of Iranian exports could be off the market by the end of the year,” said Croft. “For the Trump administration to pursue this Iranian policy while Venezuelan production continues to collapse leaves very little margin for spare supply.” She said that there are three countries to keep an eye on, in particular, including Libya, Nigeria and Iraq.

“There is nothing to indicate any sustainable recovery is going on in Libya, and that has consequences for production and exports of oil,” said Croft. “We also can see additional production problems coming in Nigeria, although the rate has stabilized at 1.8 MMbopd. The upcoming election there also could prompt some peace deals with (certain factions) to fall apart.”

As for Iraq, “the country’s people, themselves, do not believe that they see the benefits of oil production. This remains a concern.”  She also mentioned that “Yemen represents an increasingly dangerous conflict in the region,” with no good resolution in sight.