Trump Will Be Hard-Pressed to Get Allies to Stop Buying Iran’s Oil
Hawks want to reimpose the economic pressure Iran faced before the nuclear deal — but they probably won’t be able to.
The Trump administration wants to ratchet up economic pressure on Iran, but unless it can persuade skeptical governments in Europe and Asia to join the effort, it will be forced to use unilateral measures that would probably prove ineffective at choking Tehran’s economy, former officials, diplomats, and experts say.
With U.S. President Donald Trump facing a deadline next month to declare to Congress whether Iran is abiding by a nuclear deal, the administration has signaled plans for a tougher approach to the accord that could include fresh sanctions against Tehran or even triggering the reimposition of punishing sanctions that were lifted as part of the accord.
The other signatories to the accord — the United Kingdom, France, Germany, China, and Russia — strongly support keeping the nuclear deal in place and have made clear they oppose snapping back the sanctions that preceded the agreement.
In his combative speech to the United Nations General Assembly last week, Trump himself called the deal “one of the worst and most one-sided transactions the United States has ever entered into.” And administration officials, including U.N. Ambassador Nikki Haley, say Tehran is violating the spirit of the deal. They have argued for Trump to declare that Iran is not in compliance with the agreement, suggesting such a move could give Washington more leverage over Tehran.
If Trump decertifies Iran under U.S. law, Congress would have to decide within 60 days whether to reimpose an array of sanctions that were eased as part of the 2015 deal, which introduced limits on Iran’s nuclear program in return for lifting sanctions and freeing up frozen assets.
Some hawkish opponents of the nuclear agreement in Congress want to reimpose the old sanctions in hopes of recreating the economic pressure that squeezed Iran’s economy five years ago and brought Tehran to the negotiating table. One of the hardest-hitting measures required other countries to significantly reduce their purchases of Iranian oil or else face U.S. sanctions. That provision alone cost Iran tens of billions of dollars in annual oil revenues.
But the Trump administration almost certainly won’t be able to replicate the chokehold Obama placed on the Iranian economy in 2012 by limiting its crude oil exports.
Those sanctions, which reduced Iran’s exports from about 2.5 million barrels a day down to less than 1.5 million barrels a day, were ultimately successful for several different reasons. European and Asian countries supported the U.S. approach, parallel European sanctions had a crippling effect on Iranian exports, and U.S. diplomats coaxed, cajoled, and pleaded with oil-buying countries like China, India, and South Korea and successfully convinced them to limit their purchases of Iranian oil.
Since sanctions were lifted at the beginning of 2016, Iran has clawed back much of its share of the global oil market. By August of this year, it was pumping as as much oil as it had in a year (3.8 million barrels a day) and exporting 2.5 million barrels a day to traditional buyers. Europe is the main destination for Iranian oil, followed by China, India, South Korea, and Japan.
There’s no way to put that genie back in the bottle now, former government officials and energy experts say.
“I think the likelihood is high that the administration decertifies the Iran deal, but it’s unlikely we’ll see the the kind of impact — sanctions and one million barrels coming off the market — that we saw last time,” said Jason Bordoff, a former energy advisor in Barack Obama’s White House and Director of the Center on Global Energy Policy at Columbia University.
When the Obama administration pushed to reduce Iran’s oil revenues, it could argue to foreign governments that they would be making a temporary sacrifice to force Iran to negotiate the fate of its nuclear program.
“It was a key selling point that we didn’t want this to be forever. That one day we wanted to get rid of these sanctions,” said Richard Nephew, who worked as the lead sanctions expert on the U.S. negotiating team for the nuclear deal.
But Trump and some of his hawkish supporters seem to be seeking a sanctions regime without a clear diplomatic goal in mind — which means it will have a much harder sell with countries in Europe and Asia, especially since the International Atomic Energy Agency has repeatedly said Iran is in compliance with the deal.
“Trump can’t rewind to 2012, when [former Iranian President Mahmoud] Ahmadinejad made it easy to isolate Iran, and the EU was willing to play ball,” said Matthew Reed, vice president at Foreign Reports, an energy consultancy in Washington.
“In order to reimpose sanctions unilaterally, the United States would have to threaten all customers who buy Iranian crude. The response would be global outrage and resistance, especially from our allies,” he said.
The lack of international consensus is one of the biggest potential differences from five years ago, especially because EU sanctions on Iran specifically targeted shipping and maritime insurance, poleaxing Tehran’s crude exports. Bordoff said “few, if any, countries” could be expected to join U.S. sanctions this time around.
The North Korean crisis also adds a different wrinkle to the Iran deal. In 2012 and after, the United States could lean on Asian buyers like China, South Korea, and Japan to sharply limit their purchases of Iranian crude. That was relatively easy to do for a couple of reasons.
First, America’s own oil production back then was flooding the market, meaning that knocking 1 million Iranian barrels of oil out of the global market didn’t drive up prices; the United States isn’t adding any extra barrels this time around.
Second, Washington wasn’t in a nuclear showdown with Pyongyang where it desperately needed the diplomatic assistance of Beijing, Seoul, and Tokyo — not to mention the support of European countries such as France, another big buyer of Iranian oil.
Opponents of the nuclear deal insist that opposition to sanctions from the EU, China, or Russia will fade once the mighty U.S. economy is put into play. They argue that after the United States enacts the sanctions, European and other foreign companies will be forced to choose between operating in Iran or the U.S. market and will inevitably choose to stay away from Iran.
In a policy memo that circulated among Republican lawmakers and at the White House, an outspoken critic of the Iran deal, Richard Goldberg, argued that it was “unrealistic” to think European and other foreign companies would keep doing business in Iran at the risk of being frozen out of the U.S. banking system.
“No general counsels in their right minds would advise a corporate headquarters to play chicken with access to the U.S. financial system,” wrote Goldberg, who served as a senior advisor to former Republican Sen. Mark Kirk of Illinois.
But that threat only works if Washington is willing to trigger a trade war with allies over the issue. If the United States backs down, America’s sanctions would be revealed as an empty threat, Nephew said.
“You put yourself in a bear trap. It’s hard to move without running risks in either direction,” he said.
In the 1990s, the United States threatened sanctions against any company that made major investments in Iran’s oil and gas industry. The French oil giant Total and other firms defied the sanctions, and the European Union threatened to take the United States to the World Trade Organization over the issue. In the end, the Bill Clinton administration had to step back and strike a compromise in 1998.
When asked how the E.U. would respond to a possible reimposition of U.S. sanctions that could punish European firms investing in Iran, David O’Sullivan, the EU ambassador to Washington, said: “I have no doubt that if this scenario materializes, which is not clear it will, the European Union will have to act to protect the legitimate interests of our companies with all the means at our disposal.”
Speaking at an Atlantic Council think tank event, O’Sullivan cited EU “blocking” legislation that has been invoked in the past to safeguard European companies from U.S. secondary sanctions. But he added that the EU would wait to see what decision the United States takes on sanctions and the nuclear deal, and what rationale it offers.
Given Trump’s track record of tough talk followed by modest action, experts say the administration could be trying, through threats of a return of sanctions, to extract additional concessions from Iran, possibly through a new follow-up deal.
“The United States can’t get a redo on the agreement,” Reed said. But tough rhetoric could pave the way for new talks that address some of the nuclear accord’s flaws, he said, including Iran’s broader role in the region. This week, French President Emmanuel Macron said that the nuclear deal doesn’t address Iran’s destabilizing influence in the Middle East, a criticism shared by the Trump administration.
Iran has already ruled out reopening negotiations over its nuclear program, and Washington has yet to offer any additional incentives or benefits that could persuade Tehran it was worth its while, Western diplomats said.
“They were told clearly and definitively [by us] that the nuclear deal cannot be renegotiated,” Iranian President Hassan Rouhani said last week in Tehran.
This article was updated with comments by the EU ambassador to the United States.
Photo credit: ATTA KENARE/AFP/GettyImages
Keith Johnson is Foreign Policy’s global geoeconomics correspondent. @KFJ_FP