Chapter 1: What is the main topic discussed in this episode?
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It was the ultimatum that wasn't. Donald Trump backing down from his 48-hour deadline for Iran to open the Strait of Hormuz and claiming progress towards a deal is being made. Oil prices plummeted. But questions remain, including how all of this energy market tumult is affecting China, which takes in the lion's share of Iran's oil exports.
So is the US using the ongoing conflict as leverage against China? Or has China's investment in electrification set it up to weather just this sort of crisis? Welcome to ABC Business Daily. I'm Carrington Clarke.
And I'm the ABC's Chief Business Correspondent, Ian Verinder.
Ian, thank you so much for joining us. This is Taco Tuesday, as it will be perhaps forever known. Donald Trump gave this very clear ultimatum about when he wanted to see the Strait of Hormuz opened, and yet just before that deadline was about to hit, he suddenly decided that actually Iran deserves some more time. What did you make of what's happened over the last two hours?
To be honest, I'm not surprised on the one hand because, I mean, he's done this so many times before, you know, just backflipped on threats. But I was still stunned that it happened because, you know, we were talking obliteration of Iran's entire electrical system, all its power plants.
And then within, you know, I think it was a two-day ultimatum and 12 hours before it's due to expire, he's backflipped. And, of course, the Iranians have come out and said, well, sorry, negotiations? When did we do that? And so there's no agreement on either side even about whether talks took place, let alone a deal being – I mean, what did you make of it?
I mean, I think what we saw yet again was Donald Trump – claiming progress where the other side claims there's none. And in some ways, this is in keeping with what we've seen before. But I didn't think we would see such a blatant disregard for a deadline that he had given.
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Chapter 2: What was Donald Trump's ultimatum regarding the Strait of Hormuz?
I mean, America does rely on Middle Eastern oil. And I mean, America is now the world's biggest producer and exporter of oil and LNG as well. But it still needs oil from elsewhere because its oil is very light. low in sulfur. So you need to have a mixture of oils. The refineries need that to produce the fuel they need. So only about 60% of the oil in American refineries is American oil.
The rest of it comes from Canada, Mexico, and the Middle East, which leaves Donald Trump and America just as exposed to the situation is created as everybody else. But yeah, I think, you know, your point about geopolitical influences here, and particularly we're talking about China and Russia.
Well, let's break them down. Let's go with China first because obviously it is the growing influence in the global economy. Donald Trump has delayed a long-anticipated visit to China because of the situation in the Middle East. He had designs on hopefully striking some sort of new trade deal with them.
Chapter 3: How is the energy market turmoil affecting China?
There was talk of this being a very big, luxurious state visit that has now been delayed. And the relationship between America and China remains slightly confused. Are they looking to become better friends or are they actually just trying to carve out their own empires and spheres of influence? How do you think potentially America's moves in the Middle East relates to that relationship?
Well, I think your second theory is the one that's probably more on the money. And I mean, this meeting was supposed to take place, I think, at the end of this week. Now it's been delayed by, we're not sure exactly, we don't have a date.
Maybe a month, maybe a bit longer.
I think they said five or six weeks or when the conflict in Iran ends. And that might be a bit of a clue as to how long the White House is thinking this is going to go on for.
Chapter 4: Is the US using the conflict in the Middle East as leverage against China?
There's been a theory floated, and very early on in proceedings, actually, when the US and Israel started bombing Iran, that America and Donald Trump in particular was looking for some kind of upper hand in negotiations. And he's been forever... upset, angry at the way China uses its muscle over rare earths. And basically, no more rare earths for you.
Rare earths are these kind of essential ingredients that are used in a lot of the high-tech industries that we now rely on, including electric vehicles. But they're also, they go into computer chip manufacturing.
Chapter 5: What role does electrification play in China's energy strategy?
There are a certain group of compounds that China has basically taken control of strategically. Yeah. And most countries are reliant upon them.
They control China controls around 90 to 100 percent, depending on which rare earth you're talking about. And they're in everything from low end electronics through to space equipment. And so America has been forever angry about the way China has basically taken control of this. And one theory was that Trump was trying to get the upper hand saying, well, we don't like your rare earths policy.
So here's an energy policy for you. We've got control of Venezuela's oil, which you were getting on the cheap because it was sanctioned oil. We've now taken control of Iran or Iran's oil processes, which you were getting on the cheap because it was sanctioned oil. So what do you think about that? But it hasn't quite worked out that way, has it?
Well, it hasn't worked out yet. I mean, even the Venezuela example is they literally took out the president of that country. And although the regime has stayed in place, it does appear that they're more malleable to American influence. The Iranian question, even though Iran seems to have effectively closed down that Strait of Hormuz, which is that very narrow border,
what we call choke point, where so much of the world's energy supply usually goes through. Iran has stopped it, but they've also kind of had to stop their own sending of oil out as well. There's been a few ships that seem to have been getting through with Iranian permission, but it has definitely slowed that flow.
But do you think this is all about America, or at least in part about America having more leverage over China?
I think that was the initial intention. I don't think it's worked out that way, clearly not, because the repercussions that have flowed through to stock markets, through to bond markets, through to commodity markets, that is hurting America.
Now getting back to China of course, taking out or putting your foot on Venezuela and Iranian oil, that accounts for around about 17% of China's oil imports. Now Iran and China are tied
at the hip really because iran exports around about or more than 90 of its oil to china so it's it's an absolutely vital market for iran it's one of the few places that will buy its oil because it's been sanctioned um and china has since had to up its its oil purchases from russia Now, another interesting dynamic there in that America has lifted the sanctions on Russia, on Russian oil.
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Chapter 6: How does America's oil dependency impact its geopolitical stance?
And that's not time that he has up his sleeve. One advantage Vladimir Putin has is he doesn't actually face competitive elections.
I mean, it is quite extraordinary, though, to think that they would go into this conflict and not think that the other side would fire back or to take control of the Strait. It's 3.2 kilometres wide. It's not that hard to secure, especially with drone technology these days. What do they cost? 30,000 US dollars. And you can stop an entire fleet of ships with them.
It has proven so far to be an impossible task for America to keep it open, despite Donald Trump continuing to claim it. And as you said, there is this question mark now about whether or not Marines could potentially be deployed. You would think that would be a very risky venture, but A lot of people didn't think they would go after, they wouldn't kill the ayatollah either in Iran.
That was also a big step, wasn't it? So much to discuss. We could go all day, but I think we'll have to end it there. Thanks for joining us, Ian.
Thanks, Carrington.
And that's it for today's episode of ABC Business Daily. Two down, hopefully many more to go. Thank you to each and every one of you that's joined us already. We'll be back with another episode tomorrow. So you don't miss out, make sure you're following us on ABC Listen. Just search and follow the ABC Business Daily feed. And if you like what you're hearing, tell your friends.
If there's business and economic news that has you stumped, we're here to help. You can send in a question, preferably a voice note, to abcbusinessdaily at abc.net.au and we'll endeavour to answer it in a future episode. Thank you, Ian.
And thank you, Carrington.
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