The Trump administration has been going back and forth over how hard it plans on pushing countries to cut their imports of Iranian oil to zero. After softening the tone earlier this month, the U.S. government appears to be going back to its hardline on sanctions, which threatens to shut in the bulk of Iranian supply.
The U.S. has rejected requests from a group of ministers from Germany, France, the UK to provide exemptions to sanctions on Iran for certain industries. The intention was to allow European companies to engage in some business with Iran. Washington rejected the overture so it can apply “maximum pressure” on Tehran.
Iran has said that it would only continue to participate in the 2015 nuclear accord so long as the European Union can somehow guarantee the benefits promised under the deal. U.S. sanctions will make Europe’s task exceedingly difficult, if not impossible.
The first wave of U.S. sanctions take effect in August, and the letter sent to European ministers by Secretary of State Mike Pompeo and Treasury Secretary Steven Mnuchin said that the U.S. would only grant exemptions if it was in the specific interest of national security or on humanitarian grounds. There has already been an exodus of companies doing business in Iran, and the letter from the two Trump cabinet members underscores the hardline approach from Washington.
The letter comes about a week after Pompeo appeared to soften the American position. “There will be a handful of countries that come to the United States and ask for relief . . . We’ll consider it,” he told Sky News Arabia during a visit to Abu Dhabi.
Meanwhile, the U.S. and Israel reportedly formed a joint working group a few months ago to focus on fomenting, or at least encouraging, internal unrest in Iran. The actions are extraordinary and aggressive, and point to a desire for regime change in Iran even if that goal is not the explicit policy of the Trump administration.
Still, the next wave of sanctions, set to take effect in November, will be much more important to watch than the upcoming August sanctions. The U.S. is hoping to cut Iranian oil exports down to “zero,” as a State Department official put it in June. Various comments since then have led to some confusion, opening the door to the possibility of some waivers in the event that the oil market suffers from too much disruption.
In recent days, the Trump administration did little to clear up its position. “We want people to reduce oil purchases to zero, but in certain cases if people can't do that overnight, we'll consider exceptions," Sec. of Treasury Mnuchin told reporters on Friday. That sounded like a backtracking from all the talk of taking Iran exports down to “zero.”
Recent comments from Mnuchin did little to clear up the confusion. “We’ve said very specifically, there’s no blanket waivers, there’s no grandfathering,” Mnuchin said, “We want to be very careful in the wind-down around the energy markets to make sure that people have the time.” He also added: “The State Department has the ability to issue waivers around significant reductions in the oil markets, that’s something that Treasury and State will be doing.”
The sudden plunge in oil prices could grant the Trump administration more leeway as it tries to shut in Iranian supply. The spike in oil prices in late June seemed to cause some hesitation on the application of Iran sanctions by the U.S.; the selloff in oil prices, especially if it holds, could have the opposite effect.
Saudi Arabia and Russia have suggested that OPEC+ could provide more than the 1 million barrels per day that they pledged last month, in the event that the oil market needs it. The return of 800,000 bpd from Libya also gives the U.S. a lot more room to tighten the screws on Iran without upsetting the oil market too much. Also, the Trump administration is considering options on releasing oil from the strategic petroleum reserve, which, again, would seek to offset supplies from disrupted locations around the world.
Much remains to be seen, but the recent selloff in oil prices and the restoration of oil from Libya means that the Trump administration has a lot more room to take the hardline position that it wants to take on Iran.
By Nick Cunningham of Oilprice.com
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