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U.S. Moves to Stop All Nations From Buying Iranian Oil U.S. Moves to Stop All Nations From Buying Iranian Oil
(about 4 hours later)
The Trump administration moved to broaden Iran’s economic isolation on Monday by announcing it would fully enforce sanctions that were imposed last fall and stop allowing five large nations to buy Iranian oil. Global oil prices rose even before the announcement in Washington, increasing the specter of a surge in oil and gasoline prices. WASHINGTON — By tightening sanctions on Iran, the Trump administration on Monday moved to isolate Tehran economically and undercut its projection of power across the Middle East. But the clampdown by the United States has complicated relations with China at a particularly sensitive moment.
Secretary of State Mike Pompeo said the United States would no longer grant oil waivers to China and India, Iran’s two largest customers. The decision would also end waivers for Japan, South Korea and Turkey, all American allies or partners. The move to stop allowing five large nations to buy Iran’s oil was an audacious strike at its life line — its 1 million barrels of oil exports daily — fully half of which go to China. The decision also ended sanctions waivers for India, Japan, South Korea and Turkey, all countries that depend heavily on oil imports and trade robustly with the United States.
The waivers had allowed the five nations to avoid major sanctions against Iranian oil exports that were imposed by the United States last November. Those exceptions will expire on May 2, clearing the way for American economic penalties against all companies or financial institutions that continue to take part in transactions linked to buying Iranian oil. “We will no longer grant exemptions,” Secretary of State Mike Pompeo said in announcing that current waivers to the five nations would expire on May 2, clearing the way for American economic penalties against all companies or financial institutions that continue to take part in transactions linked to buying Iranian oil.
“We will no longer grant exemptions,” Mr. Pompeo said in Washington. “We’re going to zero. We’re going to zero across the board.” By withdrawing from the 2015 Iran nuclear deal, and phasing in sanctions, the Trump administration has sought to cripple the Iranian government and weaken the power of its ruling clerics. Mr. Pompeo said Iran has earned about $50 billion annually from oil sales, accounting for as much as 40 percent of government revenues.
“Any action or entity interacting with Iran should do its due diligence and act with caution,” Mr. Pompeo said. He estimated that Iran was earning about $50 billion per year from oil sales, accounting for as much as 40 percent of the government’s revenues. The Iranian economy is already reeling, and Iranian-backed militias have been forced to tighten their payrolls.
Global crude prices rose 3 percent early Monday morning in Asia, and Brent crude futures climbed to more than $74 a barrel. But with the 2020 elections and the summertime surge in energy use drawing closer, President Trump has railed on Twitter against higher gasoline prices that have resulted from rising oil prices. The prices are now at roughly their highest level in six months.
With the 2020 elections and the summertime surge in energy use drawing closer, President Trump has railed on Twitter against higher gasoline prices that have resulted from rising oil prices. Since the year’s start, world oil prices have risen roughly $20 a barrel, as Saudi Arabia and Russia have curbed production. The prices are now at their highest level in six months. Mr. Pompeo said the United States has been in “constant discussions with allies and partners” to find an alternative source of oil, including the United Arab Emirates. It is also tightening its embrace of Saudi Arabia to punish Iran without damaging the global economy.
The clampdown on exports also risks exacerbating tensions with the five nations and hindering other administration policy priorities. The United States is engaged in intense trade talks with China to try to end a trade war that Mr. Trump started last year. And it is working with China, South Korea and Japan on a policy for dealing with North Korea, which, unlike Iran, has a growing nuclear arsenal. But the Trump administration’s increased coordination with Saudi Arabia, to assure that oil markets remain fully supplied, follows persistent criticism by American officials of the kingdom’s human rights record, its war in Yemen and its role in the October assassination of journalist Jamal Ahmad Khashoggi, who was a resident of the United States.
By increasing sanctions, senior American officials are aiming to weaken the power of the ruling clerics in Iran and force major political change on the country. Since last year, Mr. Pompeo has cited a list of 12 actions he wants to see Iran take before easing sanctions, including ending its support for militias in the Middle East. Saudi Arabia is an avowed enemy of Iran; it also has been coordinating with Russia in recent years to manage global oil prices. Should Russia balk at increasing its own output to stymie the United States, oil prices could soar and hurt the global economy.
The New York Times reported last month that the American sanctions have forced Iranian-backed militias to tighten their payrolls. “We have watched Iran have diminished power as a result of our campaign,” Mr. Pompeo said on Monday. International oil prices, which had already climbed $20 a barrel this year, soared by 3 percent after the first reports of the administration’s policy shift.
The further cutoff of oil revenue is expected to make life harder for people in Iran, which already is beset by a critical medicine shortage. European nations have opposed the Trump administration’s pressure campaign against Tehran and have set up a transaction entity known as a special purpose vehicle to try to do some business with Iran, though that is not expected to include oil purchases. Iran reacted in angry and threatening tones, threatening to close the Strait of Hormuz, which connects Persian Gulf oil production with Asia — a move that would effectively sabotage the world economy.
Mr. Pompeo said the United States has been in “constant discussions with allies and partners” to find an alternative source of oil. American officials have also spoken to counterparts in Saudi Arabia and the United Arab Emirates about increasing oil production, and officials in those nations “have assured us they will ensure an appropriate supply for the markets,” he said. “In the event of any threats, we will not have the slightest hesitation to protect and defend Iran’s waterway,” said Alireza Tangsiri, head of the Revolutionary Guard naval force, according to state media.
A decline in Iranian supplies will be made up by increased oil from Saudi Arabia, the United Arab Emirates, Russia and the United States, said Sadad Ibrahim al-Husseini, former executive vice president of Saudi Aramco. Khalid Al-Falih, the Saudi energy minister, said the kingdom would provide support to global oil markets to avert any shortages. Among all the complications, one stands out. China is Iran’s largest oil buyer and has been increasing its purchases this year, contrary to Trump administration demands that it gradually bring the imports to zero.
“Saudi Arabia will coordinate with fellow oil producers to ensure adequate supplies are available to consumers while ensuring the global oil market does not go out of balance,” Mr. Falih said. “We’re going to zero,” Mr. Pompeo said. “We’re going to zero across the board.”
Nevertheless, the global oil market will almost certainly tighten, especially with American sanctions on Venezuela and fighting escalating in Libya. Both nations are major oil producers and suppliers to the countries that traditionally have also relied on Iran. But by retracting its oil exemptions, the Trump administration is encroaching on China’s energy security even as Washington is trying to strike an all-important trade deal with Beijing. The United States also needs China’s help in controlling North Korea’s nuclear weapons development.
China is by far Iran’s biggest market, importing 500,000 barrels a day of Iranian crude, and Beijing has repeatedly objected to American sanctions. The Chinese government immediately pushed back against the decision on the waivers, although analysts said both Beijing and Washington will be careful not to jeopardize their trade talks.
Jason Bordoff, director of the Center on Global Energy Policy at Columbia University and a former energy adviser to President Barack Obama, said that he doubted China would stop importing Iranian oil — and that will produce awkward choices for the administration. “China consistently opposes U.S. unilateral sanctions,” said Geng Shuang, a Chinese foreign ministry spokesman. “The Chinese government is committed to protecting the legitimate rights and interests of Chinese enterprises.”
“Iran sanctions are going to be a big challenge for the U.S.-Chinese relationship,” he said. “Chinese imports from Iran have been going up this year, not down. Within the next couple of months, if they are not at zero, the law requires that the U.S. sanction financial institutions in China that facilitate those transactions, and right now that includes the People’s Bank of China.” The United States and China have been closing in on an agreement that would cover a wide range of trade issues.
Turkish leaders are certain to be upset by the announcement. Last week, Ibrahim Kalin, a senior adviser to the president of Turkey, pressed officials in Washington to extend a waiver to Turkey. Negotiations are expected to continue over the next two weeks, first in Beijing and then in Washington, to resolve several sticking points, including the all-important issue of removing current tariffs. If those gaps are bridged, the two sides will look to schedule a signing summit between Mr. Trump and President Xi Jinping of China in May or June, said a person who has been briefed on the talks and spoke on condition of anonymity.
“In terms of oil, Iran is one of our main oil suppliers, and we made it clear that not only would we like to continue to buy oil from Iran, but also Iran is a neighboring country,” Mr. Kalin told journalists after those discussions. “We have a long border with Iran, we have cultural ties.” Any move by Beijing to keep buying Iranian oil — which analysts predicted China almost certainly will find some way to do — would force the United States to decide whether to sanction Chinese financial institutions, which are a growing global presence and increasingly important in the worldwide economy. China could also set up a new vehicle as an alternative to using the current banking mechanisms, as the European nations have done to keep doing some business with Iran.
Since last May, when Mr. Trump withdrew from a nuclear deal that the United States and other world powers reached with Iran in 2015, the Trump administration has relied on economic sanctions as the core tactic of its campaign against Tehran. “Iran sanctions are going to be a big challenge for the U.S.-Chinese relationship,” said Jason Bordoff, director of Columbia University’s Center on Global Energy Policy and a former energy adviser to President Barack Obama.
The waivers were granted to eight nations and provinces with the understanding that they were supposed to gradually decrease their oil purchases from Iran to zero. Three of the eight — Taiwan, Italy and Greece — never used their waivers and have ended Iranian oil imports. He added that if Chinese imports do not drop quickly, the American sanctions could be applied to Beijing’s central bank, the People’s Bank of China.
Iran currently exports roughly a million barrels a day, approximately 1 percent of world supplies. India, South Korea and Japan, all major buyers, have been warehousing oil and weaning themselves off Iranian oil. Over the last six months of waivers, they have also found alternative sources of oil, including from Africa and the United States. The United States and China are already at odds over an incendiary case involving Iran sanctions.
Iran may try to evade the sanctions by smuggling oil overland, including through Iraq, and shipping through the Strait of Hormuz. In January, Canadian authorities arrested a top Chinese technology executive, Meng Wanzhou, at the Vancouver airport at the request of American officials. The United States Justice Department is seeking her extradition to face charges of helping her company, Huawei, evade sanctions on Iran in a scheme that involved tricking American banks.
Iran threatened to close the strategic waterway, through which Persian Gulf oil transits to Asia, if it is blockaded by the United States. “In the event of any threats, we will not have the slightest hesitation to protect and defend Iran’s waterway,” said Alireza Tangsiri, head of the Revolutionary Guard naval force, according to state media. That case has been criticized by the Chinese officials, who have said it is motivated purely by politics. It also heightened fury and grievances from the Chinese government over sanctions imposed by the United States on Iran in the administrations of both Mr. Obama and Mr. Trump. Chinese companies have many business ties to Iran.
The question of whether to continue the waivers had generated intense debate in Washington in recent weeks. John R. Bolton, the national security adviser, strongly advocated discontinuing the waivers, while Mr. Pompeo had been advised by some State Department officials to continue them. The case of Ms. Meng shows how tensions over various issues could impact the trade talks. Mr. Trump has suggested he could help with Ms. Meng’s release if China cooperates in the negotiations. The oil issue could also end up as a bargaining chip in those talks.
Republican senators — led by the delegation from Texas, the center of the American oil industry — have urged Mr. Trump to end the waivers. Leaders of the other four nations are also certain to be upset by Monday’s announcement.
Saudi Arabia, which is Iran’s main rival, had expected the Trump administration to impose maximum sanctions against Iran and was disappointed by the waivers. The kingdom had ramped up its own oil production in anticipation of the Iranian oil going off the market. The United States needs to keep frictions at a minimum with South Korea and Japan, both of which are key partners on a policy to deal with North Korea. Turkish officials in Washington last week asked for a continued waiver for oil purchases, with Ibrahim Kalin, a senior adviser to President Recep Tayyip Erdogan, noting that “we have a long border with Iran, we have cultural ties.”
But Saudi Arabia has welcomed the rise in global oil prices that finances the kingdom’s budget and may attract international investors to its proposed initial public offering of Saudi Aramco, which has been delayed over the last year. Saudi Arabia will need to consult with its partners in the Organization of Petroleum Exporting States and with Russia before turning up the taps significantly. That could take a few months. And India, which imports four-fifths of its oil, depends on Iran as one of its main suppliers. Monday’s decision could have an immediate effect on Indian financial markets if it causes oil prices to jump.
Russia is also able to deliver more supplies. President Vladimir V. Putin of Russia said last week that he was satisfied with the rise in prices, and that it was premature to reconsider production levels for the second half of the year. For all of its complications with Washington, Saudi Arabia enthusiastically endorsed the end of the exceptions. The rise in global oil prices finance the kingdom’s budget and may attract international investors to its proposed initial public offering of Saudi Aramco, which has been delayed over the last year.
The Trump administration enacted increasingly tough measures against Iran, even over the objections of some of its own officials. “Saudi Arabia will coordinate with fellow oil producers to ensure adequate supplies are available to consumers while ensuring the global oil market does not go out of balance,” said Khalid al-Falih, the Saudi Minister of Energy.
On April 8, the administration designated as a foreign terrorist organization the Islamic Revolutionary Guard Corps, a powerful unit in the Iranian military. It was the first time the United States had applied that label to part of another nation’s government. Top Pentagon and C.I.A. officials opposed the move, saying it could place American troops and intelligence officers at greater risk of reprisals. But some experts warned that relying on Riyadh presents other threats to the stability of the Persian Gulf, including possible Iranian cyberattacks on Saudi energy facilities. “The disruption of Saudi oil production could systematically rattle markets,” according to a research note by the consultancy Eurasia Group on Monday.
Russia, which is able to deliver more oil supplies, also stands to profit. President Vladimir V. Putin of Russia said last week that he was satisfied with the rise in prices, and that it was premature to reconsider production levels for the second half of the year.
Since the administration withdrew from the Iran nuclear deal nearly one year ago, oil prices have been on an erratic ride.
Oil prices first soared to over $85 a barrel as tensions between the United States and Iran escalated, before plunging to around $50 after the administration granted the waivers six months ago. As crude prices have rebounded since January, so have prices for American drivers at the pump.
The average price of regular gasoline nationwide has increased by 23 cents over the last month alone to $2.84, 8 cents above a year ago. They are bound to go higher during the summer driving season, energy analysts said, especially if American sanctions remain against Venezuela and political crises persist in Libya, two other major oil producers.