re: Indonesia to Offer to Buy $10 Billion of Additional U.S. Energy Goods

quote:

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Int’l based Major Oil Co with US assets produces tanker full of crude oil

Int’l based Major Oil CO’s trading company sells / buys contracts (paper) on crude (physical crude in this tanker may be traded multiple times before it finally offloads at final destination).

So, how does “buying from US” take place when U.S. does not own this crude. What is the control on point A (US) to point B (Indonesia) in this crude / tariff transaction.

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A few things here.. long post ahead (sorry):

First, it doesn’t really matter that the oil company is international. Odds are the company is headquartered in the US anyway, but that doesn’t really matter either. What matters most of the time is the country of origin for the shipment in question.

So if Shell (headquartered in London) produces a tanker worth of crude oil in the US, then sells it to a foreign trading company who loads it onto a foreign-flag tanker and ships it to Indonesia.. it’s still a US export to Indonesia.

Second, these trade deals are generally not as straightforward as “country A agrees to buy $x of [goods] from country B.” That’s how they often get simplified for media purposes but reality can be much more complicated. The deal often has something to do with import quotas.

The import quota is a cap on imports of a specific good such as crude oil or LP gas (using the examples in OP). That quota might apply to all imports or just imports from a specific country. It can also be absolute or tariff-based. With an absolute quota, the government basically says the country can only import x [unit of measure] of a specific good. After that, no more imports. If it’s tariff-based, the government applies a tariff rate to imports once the quota is filled.

So a country’s government can pull some levers to “buy more” from another country by playing with quotas. If Indonesia has a quota on US crude oil set as 5MM bbl/year and raises that quota to 10MM bbl/year, that might get spun as “Indonesia will buy an additional 5 million barrels of crude oil from the US.”

Whether that statement is true or not depends on many factors. If the US is only shipping 2.5MM bbl/year to Indonesia and their quota is set at 5MM bbl/year, increasing the quota by another 5 million barrels probably isn’t going to change much because they aren’t currently reaching the quota anyway

If they are reaching the quota, there are still other factors. If they increase their quota for US crude while simultaneously decreasing baseline tariffs for Saudi crude, the quota change may not have the intended effect as Saudi crude becomes more competitive. If every other country also increases their quotas on US crude at the same time, making US crude oil more expensive in the global market due to higher demand, that’s also going to dampen the effect (although it’s still a net positive for US producers and incentivizes further US investment in O&G operations).

Of course there are other cases where a country might actually make a legitimate commitment to buy a certain amount of US goods. Particularly if it’s a market sector where the country’s government directly controls imports. Defense spending is an obvious example. Oil & gas could fall into this category if there’s a national oil company who owns the refineries.