News : Sanctions
- Published: Friday, 03 May 2019
By Edward Carney
Thursday marked the end of the 180-day waivers that were granted to the eight largest importers of Iranian oil at the time that the US State Department re-imposed sanctions in line with President Donald Trump’s withdrawal from the 2015 Iran nuclear deal.
Before those sanctions took effect last August, the White House insisted that it would not be granting any waivers in the first place, though it ultimately relented in response to fears that a rapid move toward “maximum pressure” would spike global oil prices and create backlash among allies. On this basis, it was widely expected that the administration would extend at least some of the waivers beyond their May 2 expiration date, but analysts were surprised by an announcement to the contrary approximately two weeks ahead of that date.
The White House may have been emboldened toward this decision in part by reports that at least three of the eight importers had already managed to stop all loadings of Iranian oil. All eight were expected to reduce those imports significantly as a condition of the waivers, and universal compliance with this provision arguably set the stage for further reductions, in some cases to zero. But there is still some doubt surrounding the extent of the compliance that can be expected now that all eight countries are expected to stop importing Iranian oil immediately.
In a video report two days before the waiver expiration, Al Jazeera described the US government as “struggling to build a united front” with regard to the enforcement of Iran sanctions. The report pointed out, for example, that China was poised to utilize financial channels that avoid the American banking system in order to go on conducting transactions with the Islamic Republic. In some cases, these transactions may involve banks that are already under US sanction, thereby making the risk of sanctions enforcement redundant.
A number of reports have pointed to India and Turkey alongside China as former beneficiaries of the waivers who may not fully comply with the sanctions now that those waivers have been withdrawn. In fact, these three countries were also highlighted by Iran’s Foreign Minister Javad Zarif as he argued that even allies of the United States would be angered by the latest step toward maximum pressure and would work to undermine it.
“People are not happy. China is not happy, Turkey is not happy, Russia is not happy. France is not happy. US allies are not happy that this is happening and they say that they will find ways of resisting it,” Zarif said without citing specific examples. But this expression of confidence in the international community and especially in Western nations like France seems at odds with Tehran’s previous commentary regarding the nuclear agreement and the supposed lack of adequate financial incentives for Iran to remain a party to it following the American withdrawal.
After months of discussion, the three European signatories to the Joint Comprehensive Plan of Action – France, Germany, and the United Kingdom – set up their own supposedly sanctions-proof financial mechanism, known as the Instrument in Support of Trade Exchanges. But this tool has yet to actually be put to use, and Iranian officials have loudly condemned European inaction, even as the Iranian government refuses to adopt international standards that would make trade at least somewhat more feasible.
Iran’s own unwillingness to compromise may have a positive impact on compliance with US sanctions, at least among some nations that stand to be targeted by those sanctions. But the European waiver recipients – Greece and Italy – have already stopped importing Iranian oil, as has US ally Taiwan. Meanwhile, reports indicate that South Korea paused such imports in anticipation of the US decision on waivers, and is now scouring the world for alternate sources of petroleum, in order to fully offset the expected reduction.
Of course, the actual availability of such alternatives is as much of a determinant of global compliance as is the desire of relevant nations to take one position or another in the growing political tensions between Iran and the US. As recently as a few days before the withdrawal of all waivers, the global oil market seemed to reflect persistent uncertainty about whether South Korea and others would be able to effectively turn to other sources.
The price of the commodity rose and fell during the last days of April. On Sunday, Reuters reported a three percent decline stemming from President Trump’s public statement expressing confidence that OPEC could make up for the loss of Iranian oil, and insisting that it do so. But on Wednesday, Agence France-Presse indicated that prices were trending near six-month highs. In the same report, AFP quoted Iranian Oil Minister Bijan Zanganeh as saying that the country’s neighbors were exaggerating their own ability to increase oil output, and that the US plan to bring Iran’s oil exports to zero was nothing more than an “illusion.”
However, Zanganeh did not specify which regional countries he believed were trying to signal to the international community that “there would be no problem facing global supplies as Iranian oil goes off the market.” The likeliest targets of such condemnation are Saudi Arabia and the United Arab Emirates, but as Al Jazeera pointed out on Tuesday, the Saudis have actually somewhat pushed back against the Trump administration’s efforts to compel and increase in their output.
Although Saudi Oil Minister Khalid al-Falih did say last week that the kingdom “will not leave [its] customers scrambling for oil,” he also said the Saudis saw no immediate need to raise production, least of all at a time when OPEC and certain other petroleum exporting states were still enforcing an output control agreement stemming from major price declines in recent years. Nevertheless, Falih did seem to provide some non-specific reassurance by stating that global inventories were currently rising, even in the face of losses from Iran and Venezuela. Additionally, Reuters quoted on industry expert as saying that Saudi Arabia is capable of raising its own output for the month of May while remaining in compliance with the OPEC+ agreement.
While these sorts of observations may not result in firm expectations from the global oil market, they do speak to the apparent potential for future adjustments as certain members of the international community make decisions regarding to the newfound American pressure on Iran. The Iranian regime itself would have foreign observers believe that many of those decisions will be to Iran’s benefit. But the latest information only supports this claim as it relates to Iran’s most firmly established allies.
On Saturday, Russian President Vladimir Putin gave a vague declaration of support for the Islamic Republic, expressing hope that its oil exports would continue despite US pressure. Putin also reiterated Saudi Arabia’s lack of commitment to expanding oil production, adding: “I hope this does not happen in the end.” But even the Russian president’s statements seemed to reflect substantial doubt, as when he professed having “no idea how the world energy market is going to react” to enhance US pressure.
Putin was speaking at an investment conference in the Chinese capital of Beijing, potentially highlighting the longstanding concerns among some Western policymakers that Russia, China, and Iran could form the core of an “eastern bloc” alliance that would work in tandem to oppose American and European interests. But it is not just the Western powers that might stand to be affected by the firming of these alliances. And this could have some bearing on other nations’ reactions to the removal of sanctions waivers, and to other, similar gestures by the White House.
On the one hand, South Korean economic competition with China presents a complicating factor in the search for alternate sources of petroleum, with cheap Iranian oil condensates presently serving a crucial role in South Korean petrochemical products’ market advantage. On the other hand, tensions between China and Japan may bolster cooperation between Japan and the US, with implications for other areas of the world.
On Saturday, President Trump and Japanese Prime Minister Shinzo Abe met at the White House and expressed joint commitment to matters of great significance to each country. While Abe no doubt led the push to condemn China’s militarization of disputed territories in the South China Sea, it was surely Trump who guided the expression of a shared desire “to see Iran change its path and seek a more peaceful course forward.”
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