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Iran Feeling Economic Isolation From U.S. Sanctions

The United States has no intention of granting any further sanction waivers to Iran crude oil buyers, the U.S. special representative for Iran, Brian Hook, said this weekend, as quoted by Reuters, just as Iran’s top oil buyers Japan and South Korea restart their purchases of Iranian crude.

Speaking on the sidelines of an oil industry conference in the UAE, Hook said “We are not looking to grant any waivers or exemptions to the import of Iranian crude,” adding “Iran is now increasingly feeling the economic isolation that our sanctions are imposing ... We do want to deny the regime revenues.”

In November, when the U.S. sanctions against Iran returned, the State Department announced sanction waivers for eight major Iranian oil importers, among them China, India, Japan, South Korea, Turkey, Taiwan, Italy, and Greece. However, Washington made it crystal clear these waivers were temporary and the eight countries were expected to reduce their intake of Iranian crude gradually to zero: the ultimate goal of the Trump administration with regard to Iran.

Some of these importers, notably South Korea and Japan, reduced their Iranian oil imports to zero ahead of the sanctions’ entry into effect in a bid to maximize their chances of scoring a waiver. Now that these have been granted, these two countries, the closest U.S. allies in Asia, have still demonstrated reluctance to restart buying Iranian oil. Even so, both Japanese and South Korean officials and industry insiders have said there are plans to resume imports, albeit temporarily, this month or next.

China and India also reduced their intake of Iranian oil in the past few months but have not made a secret of their preference to continue buying Iranian crude even after the expiry of the waivers. India, in particular, even announced a payment settlement mechanism for Iranian oil that may allow it to avoid breaching the U.S. sanctions.

By Irina Slav

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  • Mamdouh Salameh on January 14 2019 said:
    It is irrelevant whether the United States renews the sanction waivers in May or not. These waivers were granted to eight countries (China, India, Japan, South Korea, Turkey, Taiwan, Italy, and Greece) who with the exception of Japan and South Korea didn’t need them in the first place and would have continued to buy Iranian crude with or without waivers.

    Still, I believe there is a reasonable probability that the Trump administration may renew the waivers if for no other reason than to use them as a fig leaf to mask the fact that their zero exports option is out of reach and that sanctions have failed so far to cost Iran the loss of even a single barrel of oil.

    Moreover, 95% of Iran’s oil exports estimated at 2.125 million barrels a day (mbd) go to China (35%), India (33%), the EU (20%) and Turkey (7%). The remaining 5% go to Japan and South Korea.

    If the waivers weren’t renewed, it will mean that only 5% of Iranian crude imports by Japan and South Korea may not materialize. However, China and India have been significantly increasing their purchases of Iranian crude. And with the rising tension between the United States and Turkey over the Syrian Kurds, I expect Turkey to increase its purchases of Iranian crude as an act of defiance against the US.

    Dr Mamdouh G Salameh
    International Oil Economist
    Visiting Professor of Energy Economics at ESCP Europe Business School, London

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