They want to sit down once and deal with all the issues, so they’ve been waiting to see if there is any opening for negotiation, which is still very much uncertain. China does have a lot of different cards to play, but I think it will use them very cautiously. It is trying to portray itself as a stabilizer - as the partner of choice and the reliable actor in the global economic system. So, it has calibrated its responses carefully so far. Any moves would impact China’s currency, its goods, and its role in global stability. And even though the recent data on the Chinese economy has been good – namely 5.4% Q1 growth that beat expectations – economic sentiment inside the country isn’t great. Their number one priority is domestic stability, economic activity, and shielding themselves from external pressure to the extent possible.
How has oil demand performed so far this year?
The first quarter is always tricky, as there’s the Chinese New Year, and there was a lot of travel this year and so it’s hard to tell the base effects. The first two months of the year were not great on oil imports, but March picked up. The bigger story is that oil product demand in China is falling; that’s structurally a trend that we're going to have to get used to. Gasoline demand is slowing, and probably falling, because of EV penetration. There’s fuel displacement in diesel. And if petrochemicals get hit, I wouldn’t be surprised if we see China starting to shift more to coal.
Could we see China take less Iranian oil as it negotiates on tariffs with the US?
The situation has changed compared to the first time Trump hit Iran with sanctions. First, on US-China relations more broadly - back then, China wanted to salvage a lot in the relationship. Today, I think they’re much more structurally pessimistic about where things are going. Also, it was the state-owned majors buying Iranian crude back then. Today, it’s independent refineries. Of course, the Chinese government has control and could crack down on that trade, but this is low-cost feedstock for marginal suppliers in the market, and they are concerned about energy security, so they have limited incentive to stop. Right now, here’s no reason for China to do anything on Iran to support US policy goals. It might be one of the things they’d give, but it doesn’t feel like something high on the list of give-and-take items between the two sides.