By Edward Carney
The US State Department released a fact sheet on Thursday detailing the effects of economic sanctions in the several months since they began being re-imposed and expanded by the White House. Last May, President Donald Trump withdrew the United States from the seven-party nuclear deal that brought about the suspension of those sanctions.
The first round of re-imposed penalties took effect after a 90-day waiting period, and then secondary sanctions on the Iranian oil industry began to be enforced in November.
Since then, more than 20 former importers of Iranian oil have cut their loadings to zero, according to the fact sheet. The State Department also found than over 100 corporations have exited the Iranian market altogether, many of them responding in advance to the mere expectation of further growth in economic pressures on the Islamic Republic.
The Trump administration has long promised to pursue a strategy of “maximum pressure,” although it has only taken incremental steps toward that goal, partly out of fear that the complete severance of Iranian oil supplies from the global market would cause a harmful spike in prices.
Nevertheless, the fact sheet emphasizes that the monthly exports of Iranian oil have fallen by 1.5 million barrels per day, to about half the volume that was being traded prior to the US withdrawal from the Joint Comprehensive Plan of Action. On the basis of that trend, the State Department unequivocally states that “purchases of Iranian crude will soon be at zero.”
This line from the fact sheet reflects what was said earlier in the week by Brian Hook, the department’s special envoy for Iran policy. Hook was responding to speculation about the future of sanctions waivers for leading importers of Iranian oil when he said, “There are better market conditions for us to accelerate our path to zero…We are not looking to grant any waivers or exceptions to our sanctions regime.”
This was also the administration’s position prior to the return of sanctions in November, but ultimately waivers were granted for eight nations - China, India, South Korea, Japan, Turkey, Italy, Greece, and Taiwan. According to OilPrice.com, and in spite of the State Department’s account of the prior successes of the sanctions regime, it is generally expected that waivers will be extended for the first five of these countries before their expiration next month. OilPrice even suggests that these waivers are already priced into the market, making it difficult for White House to immediately move toward zeroing out Iranian oil exports without risking a surge in prices.
On the other hand, the same article notes that Venezuela has recently stabilized its output amidst domestic unrest – a fact that may challenge the US government’s foreign policy aims for that country while also providing “more leverage in its efforts vis-à-vis Iran.” At the same time, Brian Hook has indicated that three of the eight waiver recipients are among those 20-plus countries that have reportedly reduced their own loadings of Iranian oil to zero. This will presumably give the administration license to withhold renewal for at least a portion of the waivers, while also making the remaining renewals conditional upon further reductions in imports from Iran.
Similar demands were already imposed in line with the previous waivers, and the affected nations reportedly complied with these demands, or even exceeded them. South Korea, for instance, imported 38.5 percent less Iranian oil in the first two months of 2019 than in the same period last year. And South Korean authorities are already anticipating the need to further reduce their averages by anywhere between five and 20 percent during the next waiver period. As such, Reuters reports that the nation’s oil industry is currently experimenting with super-light oil imported from the US, as an alternative to some of its traditional Iranian imports.
Such efforts will presumably help to put the US on track toward what Reuters says is its short-term goal: to reduce Iran’s overall oil exports below one million barrels per day. Thursday’s State Department fact sheet is not specific about when it expects the further reduction to zero. But OilPrice suggests that this may be a realistic goal in November, at which time any waivers that are renewed in May will be expiring again.
The reports of advance South Korean compliance with expected cuts may also undermine Iran’s efforts to turn its attention to Asia after writing off the prospect of serious expansions in European markets. This Iranian strategy was highlighted on Thursday by Foreign Minister Javad Zarif, who conveyed sharp criticisms of the European Union and the three European signatories to the JCPOA via the official website of Supreme Leader Ali Khamenei.
Seemingly disavowing his own prior contributions to the long-term nuclear negotiations that led to that deal in July 2015, Zarif said that the Islamic Republic “never had any hopes” for its relations with Western powers. The country’s top diplomat also suggested that the EU was both unwilling and “incapable” of defying US sanctions, as by utilizing the “special purpose vehicle” for transactions with Iran, which was officially established earlier this year but has yet to become active.
Somewhat incongruously, Zarif’s criticisms were accompanied by statements indicating that Iranian officials would “continue pressing the Europeans” to uphold the JCPOA and expand trade relations with Iran. But the EU and its member states may have a difficult time finding incentive to act counter to the US strategy of maximum pressure, if Iran is giving the impression that it is disinclined to take these efforts seriously. And Zarif’s remarks to that effect are not the first of their kind.
As Tasnim News Agency reiterated on Friday, Supreme Leader Khamenei already set this tone for Iranian foreign policy in his remarks to the nation last month, on the occasion of the Iranian New Year holiday, Nowruz. “It is a bitter joke,” he said in reference to the special purpose vehicle, or Instrument in Support of Trade Exchanges.
“This financial channel does not make any sense. There is a world of difference between what constitutes their duties and what they are saying in the present time. On our last international issue, the Europeans stabbed us in the back, just like what they did in the past. They betrayed us. They cannot be expected to do anything. We cannot have any expectations of them.”
To the extent that these sorts of statements represent growing tensions between Tehran and the nations of Europe, they are likely a contributing factor in the confidence that was on display in the State Department’s fact sheet on Thursday. Indeed, that fact sheet made reference to both “increasing diplomatic engagement” and “restoring deterrence,” to emphasize a trend toward closer international alliances in opposition to the Iranian regime’s interests.
The department credited European governments with pushing back against Iranian terrorist activity through economic sanctions and diplomatic isolation, following multiple thwarted attacks in 2018. It also pointed to the ongoing expressions of concern about Iran’s ballistic missile program development and testing, which defies the UN Security Council resolution that accompanied the January 2016 implementation of the Iran nuclear deal.
These and other actions by the international community may represent meaningful sources of support for the US strategy of maximum pressure on the Islamic Republic, which is still being advanced in an incremental fashion, but has reportedly made significant gains in the 11 months since it was announced.