Brazil’s oil exports surge as China seeks alternatives to Iranian crude

By Michelle Velez, CNN

(CNN) — Brazilian oil production and exports have hit record highs this year, largely due to increased demand from China as the US-Iran war continues to reshape global trade and geopolitical relationships.

The change highlights a global race for alternative energy sources as Middle East conflict slows oil from the region – a race that has major repercussions for the price of gas, oil, cooking fuel and other energy for consumers around the world.

China’s cultivation of trade ties with Latin America’s largest economy isn’t new. Over the past two decades, the Asian nation has grown its foothold in a part of the world long thought of as the United States’ backyard.

“I have in the past called Brazil the winner of the trade wars, and now of this actual war,” Kathryn Rooney Vera, the chief market strategist for financial services company StoneX, told CNN.

Brazil’s record-high oil production ramped up after the warring nations closed the Strait of Hormuz. The bottleneck sent China’s total crude imports plunging about 40% between February and May, Rooney Vera noted, “making them look elsewhere – to Brazil.”

The significance of Brazil’s expanded role as an alternative global supplier isn’t lost on the Brazilian government. Given “greater geopolitical instability and risks on the main international supply routes,” Brazil’s Minister of Mines and Energy, Alexandre Silveira, said in a statement to CNN, expanded oil production “has greater strategic relevance.”

Brazil’s crude production, largely driven by Chinese demand, rose to a record 4.5 million barrels per day in June, up 19% from a year earlier. And thanks to the rise in the price of oil, the value of oil exports to China more than doubled in the first half of the year to a record $15.1 billion, according to the Brazil-China Business Council.

Brazil is positioning itself as a “stable, safe and predictable energy provider,” Silveira told CNN.

The war in Iran has choked off the Strait of Hormuz, a key point of transit for what had been about 20% of the world’s oil before the war. The flow of traffic has improved in recent weeks, but as the US and Iran have struggled over control of the strait since last winter, countries around the world have sought alternative energy sources and looked to cut back on energy use.

Since the US and Israel attacked Iran at the end of February, global oil prices have jumped 30% to more than $90 per barrel.

That’s created an opportunity for Brazil, which has been pushing to expand its role in global energy markets. In 2006, massive oil reserves were found off the coast of Brazil, but that crude lies deep under a thick layer of salt, making it technically tricky and expensive to tap.

But tapping those pre-salt (also called subsalt) reserves is more profitable now for two reasons: technological advances – and the war-driven jump in global crude prices.

That means Brazil can ramp up its oil production, and therefore its oil exports, significantly over the coming years.

And energy intelligence platform Enverus estimates Brazil’s pre-salt production can hit as much as 4 million barrels per day by 2030.

Last month, Petrobras, Brazil’s state-controlled oil producer, announced a new offshore oil discovery in the region known as the Equatorial Margin, off the coast of Amapá state near the mouth of the Amazon River. Brazilian President Luiz Inácio Lula da Silva welcomed the announcement, calling the discovery “a passport to this country’s future.” He added: “If President Trump wants to continue the war with Iran and close the Strait of Hormuz, we will open up the Equatorial Margin to the entire world.”

In a statement, Petrobras said that its production and exports aren’t dependent on any single geopolitical event. And it added that it considers itself an attractive alternative to oil producers stymied by the effective closure of the Strait of Hormuz.

“Petrobras has alternative routes from the area of conflict, which gives security and competitive pricing to our operations, preserving our margins,” the company said.

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