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US Takes Major Steps toward “Maximum Pressure” on Iran, but Uncertainty Lingers

By Edward Carney

The White House announced on Monday that it would not be renewing sanctions waivers for any of the eight countries that have been importing Iranian oil while also doing business with the US over the past six months.

Secondary sanctions on Iran’s oil exports went back into effect last November, six months after President Donald Trump announced that the US would not be remaining a party to the nuclear deal that was signed between Iran and six world powers in 2015. The Trump administration initially suggested that it would not be granting any waivers to the re-imposed sanctions, as the previous administration had done. But Trump relented on this issue at the last moment, apparently out of fear that the immediate application of “maximum pressure” would drive up global oil prices.

It was widely expected that the president would come to the same conclusion again before the first round of waivers expired at the beginning of May. Many analysts suggested that he would withhold waivers for the two or three prior recipients that have already reduced their loadings of Iranian oil to zero, but would give the remaining countries additional time. However, in this case the administration elected to emphasize its commitment to maximum pressure by allowing all waivers to expire and insisting upon an immediate halt to the purchase of Iranian oil by all partner states.

Secretary of State Mike Pompeo even went as far as saying that there would be no grace period for compliance with this ultimatum. China, India, Japan, South Korea, Turkey, Taiwan, Italy, and Greece will all therefore be expected to cancel any pending orders and avoid all petroleum purchases from Iran as of the second day of May. At least some of these nations have reportedly planned for the prospect of losing the waivers, but it remains to be seen whether all of them will be both willing and able to fully comply with the American demands.

The answer to this question will no doubt depend to some extent on the availability of alternative sources of oil. The Trump administration has been urging oil-exporting partners such as Saudi Arabia to make up the difference. But according to Reuters, the Saudis were not rushing to fill the gap as of Tuesday. This is partly because the de facto head of OPEC is still abiding by an agreement with its fellow member states and some non-OPEC oil exporters to keep collective exports low in order to maintain price stability.

The participants in that agreement are scheduled to meet again in June to decide upon whether to renew it. But in the meantime, prices can be expected to climb, as they have already done both immediately before and immediately after the White House announcement. On Monday, FX Empire reported that there had been a two percent jump even before the announcement was made. And on Tuesday, it was reported that prices had reached a six-month high.

Notably, these prices are indicative of the market’s expectation that the Trump administration will be largely or entirely successful in cutting off the flow of Iranian oil. As such, there is likely to be a significant correction in the month following the waivers’ expiration. Apart from its commitment to the OPEC+ agreement, Saudi Arabia is reportedly holding back its production levels in order to be sure that any increase is justified by a preexisting Iranian decline.

This was the assessment of a Bloomberg article which also noted that the Saudis had welcomed the American move to constrain Iran’s economic power and, by extension, its regional influence. Saudi Arabia and Iran maintain a notably adversarial relationship, and the Saudis have been integral to the Trump administration’s developing plan for international pressure on the Islamic Republic. Indeed, the White House has been pushing for the establishment of an explicitly anti-Iran alliance or Middle Eastern countries, informally known as an “Arab NATO.”

The Bloomberg article cited Brian Hook, the US State Department’s special representative for Iran policy, as saying that the would-be Middle East Strategic Alliance members were already working together to offset the imminent loss of Iranian oil in the global market. Separately, Saudi officials stated that they were committed to the stability of that market, and would be consulting with fellow petroleum exporters in the coming weeks.

For its part, the Islamic Republic also professed to be consulting with partners on Monday, in the immediate aftermath of the White House’s announcement, although it remained vague as to the intentions and expected implications of this communication. The Foreign Ministry’s statement merely insisted that its consultations did not reflect the perception of “value” in the expiring waivers, then went on to say that Iranian authorities would “act accordingly” after discussion “with foreign partners, including European, international and neighbors.”

One possible goal for discussions with partners that are similarly adversarial toward the West is to court support for an often-teased plan to close the Strait of Hormuz. Tehran reiterated the familiar threat in response to the Trump administration’s latest move. “If we are prevented from using it, we will close it,” said Alireza Tangsiri, the head of naval forces for the Islamic Revolutionary Guard Corps, in reference to the waterway through which roughly one-fifth of the world’s oil supplies are traded. “In the event of any threats, we will not have the slightest hesitation to protect and defend Iran’s waterway.”

In turn, a US State Department official urged Iran “and all countries” to disavow any such plan and to “respect the free flow of energy and commerce, and freedom of navigation.” While it is doubtful that Iran could effectively close the strait, it could use asymmetrical warfare tactics, including the planting of sea mines, to harass transiting ships and possibly cause damage and loss of life. But doing so would constitute a terrible risk of retaliation, especially if Iran fails to secure substantial foreign support.

Even in the presence of support from partners, the effects could easily be outweighed by active opposition from numerous regional adversaries, including Saudi Arabia, the United Arab Emirates, and other prospective MESA members. In this sense, Iran’s ability to threaten or even bluff the West during the current period of escalating tensions may depend to a great extent on pre-existing reconciliation with some of those regional powers.

This seems unlikely in view of persistent anxiety about the Islamic Republic’s regional imperialism. But at the same time, that imperialism has helped Tehran to secure leverage in regional affairs. This was reflected, for instance, in a regional conference hosted by Baghdad on Saturday, wherein the Iraqi government sought to act as a mediator between Iran and Saudi Arabia.

In recent years, Iraq has very much been under the influence of Iran, via Shiite militias and their representatives in government. But at the same time, Iraq and Saudi Arabia have enjoyed a recent warming of relations after decades of tension. The resulting mediation is unlikely to have much of an impact on Saudi distrust of Iran, at least over the short term. But at the same time, Iran’s strategic influence over another regionally important nation is a complicating factor that its adversaries will have to confront in order to truly maximize the pressures envisioned by the Trump administration.

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