U.S. Grants Sanctions Waivers To 8 Countries Importing Iran Oil

by Ike Obudulu Posted on November 2nd, 2018

Washington, D.C., USA : The Trump administration has agreed to allow eight countries to continue purchasing Iran’s crude oil after Washington’s sanctions on Tehran take place next Monday, sparing them temporarily for now from the threat of U.S. economic penalties.

U.S. Secretary of State Mike Pompeo, who announced the decision in a conference call, did not name the jurisdictions, but said the European Union as a whole, which has 28 members, would not receive one.

U.S. Treasury Secretary Steven Mnuchin also said Washington had made clear to the Brussels-based SWIFT financial messaging service that it was expected to disconnect all Iranian financial institutions that the United States plans to blacklist as of Monday. He declined to name the targeted institutions.

The restoration of sanctions is part of a wider effort by U.S. President Donald Trump to force Iran to curb its nuclear and missile programs as well as its support for proxy forces in Yemen, Syria, Lebanon and other parts of the Middle East.

“This part of the campaign is aimed at depriving the regime of the revenues it uses to spread death and destruction around the world, Pompeo said. “Our ultimate aim is to compel Iran to permanently abandon its well-documented outlier activities and behave as a normal country.”

Trump set in motion the resumption of U.S. sanctions on May 8, when he announced his withdrawal from the 2015 Iran nuclear agreement under which Tehran had agreed to curtail its nuclear program in return for relief from U.S. economic penalties.

Turkey’s Energy Minister Fatih Donmez said his country had been told it would get a waiver.

In addition to Japan, India, and South Korea, the US would grant the oil waiver to China as well, two people familiar with Washington-Beijing discussions said on the condition of anonymity.

The other four countries to get waivers remained to be identified, but Turkey was predicted to be one of them. Turkish Energy Minister Fatih Donmez announced on Friday he had heard rumors that the US is going to exempt Ankara from the upcoming sanctions.

However, he said, he had not received written notification regarding the possible exemption.

Previously, Pompeo had said it was “our expectation that the purchases of Iranian crude oil will go to zero from every country or sanctions will be imposed,” but also acknowledged that waivers were being negotiated with nations that said crude from the Middle East producer was critical to their energy industry.

The impending oil sanctions have been a U.S. tool to pressure Iran in the six months since President Donald Trump backed out of the 2015 nuclear deal between the Middle East nation and six world powers, saying it didn’t do enough to constrain the Islamic Republic’s nuclear program or curb what the U.S. calls other “malign activity” in the region.

The U.S. move infuriated Iran and angered the other countries that negotiated the nuclear deal and still say it’s the best chance to constrain the Islamic Republic’s nuclear ambitions. The Trump administration has rebuffed them and gone ahead with its sanctions plan, arguing that nations, banks and businesses worldwide will decide they’d rather do business with the U.S. than Iran and leave the market.

Already, through its pressure campaign, the U.S. has managed to reduce Iran’s oil exports from 2.7 million to 1.6 million barrels a day, according to internal U.S. estimates.

That’s symbolically important to the Trump administration because President Barack Obama’s administration took three years to remove 1.2 million barrels from the market — and that was while acting in concert with the European Union and other nations before the international effort yielded the 2015 deal.

The administration’s decision to issue waivers to eight countries also marked a significant reduction from the Obama administration, which issued such exemptions to 20 countries over three years. During the previous round of sanctions, nations were expected to cut imports by about 20 percent during each 180-day review period to get another exemption.

“We’re quite confident moving forward that the actions that are being taken are going to help us exert maximum pressure against the Iranian regime,” deputy State Department spokesman Robert Palladino said at a briefing on Thursday. “This leading state sponsor of terrorism is going to see revenues cut off significantly that will deprive it of its ability to fund terrorism throughout the region.”

Countries that get waivers under the revived sanctions must pay for the oil into escrow accounts in their local currency. That means the money won’t directly go to Iran, which can only use it to buy food, medicine or other non-sanctioned goods from its crude customers. The administration sees those accounts as an important way of limiting Iranian revenue and further constraining its economy.

“It’s a virtual certainty that Western banks are not going to violate the escrow restrictions,” said Mark Dubowitz, the chief executive of the Washington-based Foundation for Defense of Democracies who has advised Pompeo. “The message they’re sending is don’t screw around with these escrow accounts and try to get cute.”

Iran reaction

Iran said it was not troubled over the re-imposition of U.S. sanctions, which target not only its vital oil and gas sector but also shipping, ship-building and banking industries.

“America will not be able to carry out any measure against our great and brave nation … We have the knowledge and the capability to manage the country’s economic affairs,” Iran’s Foreign Ministry spokesman Bahram Qasemi told state TV.

Iran on Friday said that the waivers granted by the US showed the Iranian crude was needed and could not be withdrawn from the market.

“The waivers granted to these eight countries shows that the market needs Iran’s oil and it cannot be pulled out of the market … I don’t know whether these waivers are permanent or temporary ones,” IRIB quoted Iran’s Deputy Oil Minister Ali Kardor as saying.

The US decision to grant the waivers came after major importers of Iranian crude resisted calls by Washington to end their oil purchases as winter looms.

The US will reintroduce the new sanctions targeting Iranian oil on Monday and American officials have said Washington does not want to harm friends and allies dependent on the oil.

The waivers would ensure the continued flow of Iran’s crude oil to the global market, potentially calming fears of a supply crunch and further suppressing international oil prices just before midterm elections in the US.

However, the waivers seem to be making the sanctions totally irrelevant, as the countries receiving them account for a lion’s share of the oil Iran exports.

According to the Iranian Oil Ministry, 60 percent of the country’s oil exports go to Asian countries, including China and India – the two top clients – as well as South Korea and Japan, and the remaining 40 percent to European countries including Turkey.

Market Reaction

Oil prices dipped on Friday after a week of heavy falls as markets braced for the imposition next week of U.S. sanctions on Iran, which Washington hopes will halt exports of Iranian oil.

Brent crude oil was down 22 cents a barrel at $72.67 by 9:44 a.m. ET (1344 GMT). The contract has fallen 6 percent this week and 16 percent since the beginning of October, when it reached its highest since 2014.

U.S. light crude was 31 cents lower at $63.38, down 17.5 percent since hitting four-year highs a month ago.

Investors are concerned about the prospects for oil supply when new U.S. sanctions are implemented against Iran on Monday.

“Oil prices look to remain under pressure, as fears of global oversupply have returned with a vengeance,” said Ashley Kelty, oil and gas research analyst at Cantor Fitzgerald Europe.

A list of all countries getting U.S. waivers allowing them to import Iranian oil is expected to be released officially on Monday, industry sources say.

Despite these efforts, waivers are likely to be only temporary.

Goldman Sachs said it expected Iran’s crude oil exports to fall to 1.15 million barrels per day by the end of the year, down from around 2.5 million bpd in mid-2018.

Beyond Iran sanctions, oil output has been rising significantly in the past two months.

Russian Energy Ministry data showed on Friday the country pumped 11.41 million bpd of crude in October, a 30-year high.

The Organization of the Petroleum Exporting Countries boosted oil production in October to 33.31 million bpd, up 390,000 bpd and the highest by OPEC since 2016.

And in the United States, crude production is now well over 11 million bpd, putting the United States in a neck and neck race with Russia for the title of top producer.

But Goldman Sachs analysts say they expect Brent prices to fall to $65 a barrel by the end of next year, largely due to “the unleashing of Permian (U.S. shale) supply growth once new pipelines come online”.

France, the United Kingdom, Germany, and the European Union

France, the United Kingdom, Germany, and the European Union have, in a joint statement, condemned the US’ fresh sanctions on the Iranian economy, and vowed to protect European companies doing business with Tehran.

The condemnation was expressed in a joint statement by EU Foreign Policy Chief Federica Mogherini and Foreign Ministers Jean-Yves Le Drian (France), Heiko Maas (Germany), and Jeremy Hunt (the UK), and Finance Ministers Bruno Le Maire (France), Olaf Scholz (Germany) and Philip Hammond (the UK).

What follows is the full text of the statement:

“We deeply regret the further re-imposition of sanctions by the United States, due to the latter’s withdrawal from the Joint Comprehensive Plan of Action (JCPOA).

The JCPOA is a key element of the global nuclear non-proliferation architecture and of multilateral diplomacy, endorsed unanimously by the UN Security Council through Resolution 2231. It is crucial for the security of Europe, the region, and the entire world.

The JCPOA is working and delivering on its goal. The International Atomic Energy Agency (IAEA) has confirmed in twelve consecutive reports that Iran is abiding by its commitments under the Agreement.

We expect Iran to continue implementing all its nuclear commitments in full, as set out by the JCPOA.

The JCPOA also provides for the lifting of international sanctions in order to have a positive impact on trade and economic relations with Iran, but most importantly on the lives of the Iranian people.

It is our aim to protect European economic operators engaged in legitimate business with Iran, in accordance with EU law and with UN Security Council resolution 2231.

As parties to the JCPOA, we have committed to work on, inter alia, the preservation and maintenance of effective financial channels with Iran, and the continuation of Iran’s export of oil and gas.

On these, as on other topics, our work continues, including with Russia and China as participants to the JCPOA and with third countries interested in supporting the JCPOA.

These efforts have been intensified in recent weeks, particularly those underpinning the European initiative to establish a Special Purpose Vehicle on which we are proceeding with work to set up.

This will enable continued sanctions lifting to reach Iran and allow for European exporters and importers to pursue legitimate trade.

Further work must be done to assist and reassure economic operators pursuing legitimate business under EU law. Our Finance Ministers will further pursue this at their next meeting. Our collective resolve to complete this work is unwavering.

We remain committed to implementing the JCPOA as a matter of respecting international agreements and of our shared international security, and expect Iran to play a constructive role in this regard.”

Russia will help Iran trade oil – Minister

Russian Energy Minister Alexander Novak has said Moscow will support Iran to counter US oil sanctions.

Novak said that Russia is looking to continue trading Iranian crude oil beyond the Monday cut-off.

“We believe we should look for mechanisms that would allow us to continue developing cooperation with our partners, with Iran,” Novak said.

Under a 2014 oil-for-goods deal, Moscow sells Iranian oil to third parties while Tehran uses the revenues from those sales to pay for Russian goods and services.

The Russian energy ministry told the FT that the trade would continue next week, while Novak said that Moscow considered the US sanctions to be “illegal”.

“We already live in the condition of sanctions,” he said. “We do not recognise the sanctions introduced unilaterally without the United Nations, we consider those methods illegal per se.”

Covering Iran’s shipping, financial and energy sectors, the sanctions are the second set to be re-imp

posed by the Trump administration since it unilaterally withdrew from the nuclear deal in May.

The 2015 deal, which also included Britain, China, France, Russia, Germany and the European Union as signatories, gave Iran relief from sanctions in exchange for restrictions on its nuclear programme.

While Trump has taken the US out of the deal, the other parties have strongly defended it and pledged to try and protect the agreement.

Britain, Germany, France and the EU have announced plans to establish a “special purpose” financial vehicle that would allow trade between Europe and Iran to continue, although it will not be ready by Monday.

The Europeans said on Friday they “deeply regret” the re-imposition of sanctions and would work to ensure legitimate trade with Iran could continue.

Author

Ike Obudulu

Ike Obudulu

Versatile Certified Fraud Examiner, Chartered Accountant, Certified Internal Auditor with an MBA in Finance And Investments who has both worked for and consulted with some of the world's largest companies on main street and wall street in over 20 countries, Ike brings his extensive reporting and investigations experience to bear on his role as Chief Editor.
Phone
Email

Leave a Reply