US ends sanctions waivers on Iranian oil imports

by on 22 April 2019

White House says Saudi Arabia and UAE will help ensure ‘sufficient supply’ in markets

The Trump administration will eliminate waivers that have allowed Japan, India and China to import Iranian oil despite US sanctions as part of an escalating effort to pressure the regime in Tehran. In announcing the move, Mike Pompeo, the US secretary of state, said Washington’s aim was to bring Iran’s crude exports “to zero”. South Korea and Turkey would also face US sanctions if they continued to import Iranian oil after the waivers are withdrawn. “Any nation or entity interacting with Iran should do its due diligence and err in the side of caution,” Mr Pompeo said on Monday. “How long we remain on zero depends solely on Iran’s behaviour.” At the same time, the White House said it had worked with Saudi Arabia and the United Arab Emirates to ensure there was “sufficient supply in the markets” to compensate for the loss of Iranian exports. The move comes just weeks after the US branded Iran’s Revolutionary Guard a foreign terrorist organisation, the first time it formally labelled part of another country’s government as terrorists. Mr Pompeo said the US goal was to “deprive” Iran of funds it has used to “destabilise” the region. “The Trump Administration and our allies are determined to sustain and expand the maximum economic pressure campaign against Iran to end the regime’s destabilising activity threatening the United States, our partners and allies, and security in the Middle East,” the White House said. Mr Pompeo did not give details of what Saudi and the UAE had agreed; a White House statement only said the countries would “take timely action to assure that global demand is met as all Iranian oil is removed from the market”. Khalid Al Falih, the Saudi energy minister, said the kingdom would work with other oil producers to “ensure adequate supplies are available to consumers while ensuring the global oil market does not go out of balance”. Privately, however, Saudi officials have been wary about acquiescing to US demands. A person familiar with Saudi energy policy said while the kingdom is willing to “help meet any shortfall”, particularly as supply risks remain in Libya and Venezuela, the Opec leader would wait to see the full impact of US waiver policy. Brent crude jumped above $74 a barrel to a high of $74.31 in Asian trading. By afternoon trading in London, as Mr Pompeo spoke, the international oil benchmark was up $1.83 at $73.79. West Texas Intermediate, the US marker, reached a high of $65.87 a barrel in earlier trading. It had eased to $65.52, which is up $1.55 on the day.

Oil prices have risen sharply this year due to voluntary and involuntary cuts by members of Opec, the oil producers’ cartel, that have tightened supply. Reducing Iran’s production capabilities “is going to make an already tight market even tighter, especially with supply risks in Libya and Venezuela”, said Jason Bordoff, an oil adviser to the Obama administration and director of the Center on Global Energy Policy at Columbia University in New York. Few oil analysts believe the US will ever be able to completely stop Iran’s crude exports, especially to China, where trade talks with Washington may complicate efforts to sever Beijing’s ties to Tehran. China had “always opposed” the US sanctions, Geng Shuang, foreign ministry spokesman, told reporters on Monday. Yoshihide Suga, Japan’s chief cabinet secretary, insisted there should be no “negative effect on the operations of Japanese companies”, adding that Tokyo would be “exchanging views closely” with Washington on the issue. A complete removal of waivers is likely to curb Iran’s exports to below 1m barrels a day, down from 1.9m in March according to industry database After US president Donald Trump withdrew from the Iran nuclear deal in May 2018 and moved to reimpose sanctions, US officials signalled he would not provide exemptions to allow allies to import Iranian oil. But Washington eventually agreed to some waivers, partly because the administration was concerned about the effects of a tight oil market on the US economy.

On Sunday, a senior US official said the administration had decided that conditions in the oil markets now were more conducive to eliminating the waivers. The decision to end waivers was first reported by The Washington Post. Saudi Arabia boosted production sharply last year before the US reimposed sanctions on Iran. But Riyadh was largely blindsided by the US decision in November to include waivers for many of Iran’s main customers, which triggered a dramatic drop in prices. Since then, Saudi Arabia has led Opec by sharply cutting output while the UAE has indicated it will not repeat an increase in supplies at US demand, saying it will only raise production if shortages emerge. The latest forecasts from major agencies including Opec and the US Energy Information Administration see the market in a deficit of up to 500,000 barrels a day this year, before more supplies from Iran — and possibly Venezuela and Libya — are lost. The end of waivers could have political implications in the US. Mr Trump has made low petrol prices part of his economic pitch to voters ahead of the 2020 election and has warned Opec not to boost prices too high.

US production, led by sharp increases in shale output, has soared in the past decade, making the country the biggest producer. But the US still remains reliant on imports for more than a third of the crude that it refines, and US domestic gasoline prices are still closely linked to the global market. Saudi Arabia and Russia are due to meet other oil producers in Jeddah next month to decide their next steps. A formal meeting of the Opec+ group, including Iran, is planned for June. “How much oil prices rise will largely depend on whether Saudi Arabia and other Opec+ nations ramp output back up to offset lost Iranian barrels,” said Mr Bordoff. Saudi Arabia’s March production was 440,000 b/d below the cap agreed in December, according to S&P Global Platts. The UAE appears to have less headroom, with Platts estimating its production last month at just 200,000 b/d under the cap. Additional reporting by Ed Crooks in New York, David Sheppard in London, Lucy Hornby in Beijing and Robin Harding in Tokyo