Report

U.S. to Allow Some Iranian Oil Sales—For Now

With sanctions kicking in Monday, the administration still aims for zero oil exports from Iran but wants to avoid spiking price of crude.

U.S. Secretary of State Mike Pompeo on Friday announced limited waivers for Iranian oil sales, but stressed U.S. intentions of applying “maximum pressure,” Washington, May 21, 2018. (Win McNamee/Getty Images)
U.S. Secretary of State Mike Pompeo on Friday announced limited waivers for Iranian oil sales, but stressed U.S. intentions of applying “maximum pressure,” Washington, May 21, 2018. (Win McNamee/Getty Images)

Just days before the formal snapback of tough economic sanctions on Iran, the Trump administration said Friday that it would grant temporary waivers to eight countries to allow them to continue importing some Iranian oil. The move reflects the administration’s effort to squeeze Iran as hard as possible by choking off a key revenue source, but without driving the price of crude oil higher or poleaxing the economies of some allies in Asia and Europe.

On Monday, harsh U.S. sanctions on much of Iran’s financial, energy, and shipping sectors will kick back into place as the six-month waiting period after President Donald Trump pulled out of the Iran nuclear deal in May comes to an end. Administration officials reiterated Friday that the “maximum pressure” campaign is meant to drive a change in the Iranian regime’s behavior, particularly by starving it of oil revenues it can use to fund terrorism and regional instability.

The campaign is “aimed at depriving the regime of the revenues that it uses to spread death and destruction,” said Secretary of State Mike Pompeo in a call with reporters.

Even before the formal reimposition of a ban on Iranian oil exports goes into effect Monday, the Trump administration’s efforts have proved more successful than many expected, if not quite the full throttling the administration set out to achieve.

Though estimates of Iran’s oil exports vary and are especially tricky to nail down because some tankers appear to be storing Iranian oil abroad, consensus figures suggest the country is exporting about 800,000 barrels per day less than the 2.5 million barrels it exported before Trump withdrew from the 2015 deal. The sanctions that kick in Monday could bring Iran’s exports down to between 1.2 million and 1.3 million barrels a day, about half what they were—if the European Union goes cold turkey, and if China continues to reduce its purchases.

The countries that are still buying limited amounts of Iranian oil are almost certainly the ones that will be getting a temporary waiver. That group includes Turkey, China, India, Japan, and South Korea. (Pompeo on Monday announced the eight countries that will get unspecified, six-month waivers to continue buying limited amounts of Iranian oil: China, India, Japan, South Korea, Taiwan, Italy, Greece, and Turkey.)

In the very short term, offering some of those countries waivers could actually lead to more Iranian oil in the market; countries like Japan, South Korea, and Taiwan had stopped all purchases to show good faith while negotiating some relief with the Trump administration but could again buy modest amounts of Iranian crude under the temporary waivers. South Korea, in particular, uses light Iranian crude for its petrochemical plants but had cut purchases this summer.

Pompeo stressed that the waivers are meant to allow those countries to make adjustments in their energy supplies, for six of the countries to sharply reduce their imports, and for two to get to zero in a matter of weeks. The concessions for smaller importing countries don’t much affect the underlying effort.

“Allowing these countries to continue to buy very small amounts is a fair trade-off from the White House point of view, because it won’t benefit Iran all that much,” but also keeps a lid on oil prices, said Henry Rome, an Iran analyst at Eurasia Group.

The waivers, even if smaller in number than what the Obama administration offered between 2012 and 2015, don’t mean the Trump administration has changed course on its maximum pressure campaign, Rome said. “They’re just getting started.”

Pompeo said that the limited concessions will make it easier to muster political support for that maximum pressure campaign, while also keeping oil prices stable at about the same level they were when Trump pulled out of the deal. Keeping oil from spiking in price limits the economic upside Iran can get even from reduced export volumes, Pompeo said.

He also said that even the oil that Iran continues to export will not easily translate into cash for the regime’s foreign-policy adventures, because the revenues will be held in offshore accounts that can only be spent on humanitarian goods and some trade.

Mark Dubowitz, the chief executive of the Foundation for Defense of Democracies, which advocates for tougher policies on Iran, stressed that those financial fetters multiply the impact of the Trump administration’s pressure campaign, even if Iran still exports some oil to buyers around the world.

“To get to zero accessible revenues, it is not necessary to get to zero barrels,” he said.

The other big part of the sanctions campaign being reimposed on Monday are sharp limits on the Iranian financial sector’s ability to conduct transactions with the global banking system.

Iran hawks in the administration and Congress wanted Trump to shut Iran totally out of the global financial system by banning all connections with SWIFT, a Belgium-based financial messaging service that acts as a central nervous system for moving money around the world. But many in Europe are wary of such a draconian approach. They want to allow Iran a lifeline to perceive at least some economic benefits from staying in the nuclear deal.

U.S. Treasury Secretary Steven Mnuchin announced on Friday a middle course. Iran will not be totally blocked from SWIFT, as hawks wanted. But more Iranian banks will be designated under the sanctions than were during the Obama administration, he said, and those that can still do business will be limited to handling humanitarian transactions and modest amounts of trade.

Further, he said, the Treasury Department will expand the list of sanctioned individuals and entities across big chunks of the Iranian economy, making it even harder for outside banks and companies to do business with the country without risking falling afoul of U.S. sanctions.

“We are intent on ensuring that global funds stop flowing to coffers of the Iranian regime,” Mnuchin said.

This article was updated Nov. 5, 2018 to reflect the formal announcement of which countries received waivers.

Keith Johnson is Foreign Policy’s global geoeconomics correspondent. @KFJ_FP

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