Trump’s sanctions resolve faces test from oil-thirsty China, India
WASHINGTON/SINGAPORE (Reuters) – When US President Donald Trump announced he would reimpose sanctions on Iran in May, the State Department began telling countries that the clock was ticking for them – pressuring them to cut oil purchases.
Trump’s strategy is meant to cripple Iran’s oil-dependent economy and force it to quash not only its nuclear ambitions, but also its ballistic missile program and calls for an end to its influence in Syria.
With just days to go before renewed sanctions take effect on November 5, reality is setting in: three of Iran’s top five customers – India, China, and Turkey – are resisting Washington’s call to end their purchases, arguing that there are insufficient supplies to replace them, according to sources familiar with the matter.
That pressure, along with worries of a damaging oil price spike, is putting the Trump administration’s hard line to the test, raising the possibility of bilateral deals to allow some buying to continue, according to sources.
The tension has split the administration into two camps, one led by National Security Adviser John Bolton, who is demanding the toughest possible approach, and another by state department officials, who are keen to balance sanctions and prevent an oil price spike that could damage the US economy and those of its allies.
The global price of oil peaked just below $87 a barrel this month, a four-year high. Because of this concern, the administration is considering limited waivers for some Iranian customers until Russia and Saudi Arabia add an additional supply next year, while limiting what Tehran can do with the proceeds in the meantime, the source said.
Revenues from sales could be escrowed for use by Tehran exclusively for humanitarian purposes, the source, who asked not to be named, said – a mechanism more stringent than a similar one imposed on Iranian oil purchases during the last round of sanctions under US president Barack Obama.
“If you’re the administration, you’d like to ensure you don’t have a spike in the price. So, you are better off from mid2019 onwards to aggressively enforce the barrels side [by] reducing to zero and in the interim aggressively enforcing the revenue side,” said the source. Such concessions could be problematic for the White House as it seeks stricter terms than those under Obama, who along with European allies imposed sanctions that led to an agreement limiting Iran’s nuclear weapons development.
The department has declined to comment, but the administration has confirmed that Washington is considering waivers. US Treasury Secretary Steven Mnuchin said that countries will first have to reduce their purchases of Iranian oil by more than 20%, from previous sanctions. US TREASURY and State Department teams have traveled to more than two dozen countries since Trump pulled out of the nuclear deal on May 8, warning governments and companies of the dangers of doing business with Iran. US allies Japan and South Korea have already ceased importing Iran’s crude oil, but the situation is less clear among bigger buyers.
Brian Hook, the department’s special representative for Iran, and Frank Fannon, its top energy diplomat, met in October with officials in India, Iran’s No. 2 buyer, after a source said that the administration was actively considering waivers.
A source from the Indian government said it told the US delegation that rising energy costs caused by a weak rupee as well as high oil prices meant that zeroing out Iranian purchases is impossible until at least March.
“We have told this to the United States, as well as during Brian Hook’s visit,” the source said. “We cannot end oil imports from Iran at a time when alternatives are [too] costly.” India imports over 500,000 barrels per day (bpd) of Iranian oil, but has reduced that level in recent months.
Discussions are also underway with Turkey, Iran’s fourth biggest crude oil buyer, even though Turkish President Tayyip Erdogan and ministers have openly criticized the sanctions. A source in Turkey familiar with the talks said it had cut its Iranian imports by half, and could approach zero, but would prefer to continue purchases.
The Obama administration granted a six-month waiver to Turkey, although Turkey expects the current administration to impose tougher requirements for obtaining waivers that could potentially cover shorter periods.
“It could be for three months, or they may not get a waiver at all. It is all a bit unpredictable this time, as we understand a lot of things are up to Trump,” the source said.
The situation is least clear in China, Iran’s biggest customer, whose state-owned buyers are also seeking waivers. The country imported between 500,000 and 800,000 bpd from Iran in the past several months. Beijing’s signals to its refiners have been mixed, the two sources said. Last week, Sinopec Group and China National Petroleum Corp (CNPC), the country’s top state-owned refiners, have not placed orders for Iranian oil for November due to concerns over sanctions.
Joe McMonigle, an energy analyst at Hedgeye in DC, said he expects the administration will have to accept some level of Iranian oil purchases from China, given its high consumption.
“Of all the countries, I don’t think they think China is going to zero,” he said.
Fannon is scheduled to travel to Asia in the coming days, with a speech in Singapore planned for October 30; an official did not comment on whether he would discuss the Iranian oil problem with Chinese officials.