In an effort to increase economic pressure on Iran, US announced (April 22. 2019) to end waivers for countries importing Iran oil. The Trump administration told that waivers given by US to five countries – Japan, South Korea, Turkey, China and India with regard to importing oil from Iran would no more be available. The US sanctions on importing oil from Iran now would hold or apply in case of these countries as well. – that they would no longer be exempt from US sanctions if they continued to import oil from Iran after their waivers ended on May 2. US Secretary of State Mike Pompeo told reporters after the White House made the announcement in a statement, “There are no (oil) waivers that extend beyond that period, full stop.” adding that there would be no grace period for those economies to comply. “We’re going to zero. We’re going to zero across the board.” Waivers according to the US ‘won’t serve regional stability. ‘Since November, three of the eight countries receiving waivers – Italy, Greece and Taiwan – have stopped importing oil from Iran. The other five, however, have not, and have lobbied for their waivers to be extended.
The purpose of sanctions on Iran oil
The United States which has engaged in a maximum pressure campaign against Tehran since Donald Trump came to office, had been giving the countries time to wean themselves off Iranian oil, but has decided that waivers would no longer be issued. Pompeo said, “The goal remains simply: To deprive the outlaw regime of the funds that it has used to destabilise the Middle East for decades and incentivise Iran to behave like a normal country.” The administration granted eight oil-sanctions waivers when it re-imposed sanctions on Iran after Trump pulled the US out of the landmark 2015 nuclear deal. The waivers were granted in part to give those countries more time to find alternate energy sources but also to prevent a shock to global oil markets from the sudden removal of Iranian crude.
Alternative sources of oil to maintain supply of oil in the world
The White House also claimed that the US, Saudi Arabia and the United Arab Emirates “have agreed to take timely action to assure that global demand is met as all Iranian oil is removed from the market”. Saudi Energy Minister Khalid al-Falih said in a statement that the kingdom was closely monitoring the oil market and “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”.
Tehran’s reactions on sanctions of its oil exports
Tehran remained defiant over Washington’s decision, saying it was prepared for the end of the waivers, while the Revolutionary Guards repeated its threat to close the Strait of Hormuz, a major oil shipment channel in the Gulf, Reuters news agency reported, citing Iranian media. Such a move, the Trump administration said, would be unjustified and unacceptable. Iran’s foreign ministry said the US decision had “no value” but that Tehran was in touch with European partners and neighbours and would “act accordingly”, Iranian news agencies reported. It added that the sanctions were “illegal”. “The waivers … have no value but because of the practical negative effects of the sanctions, the Foreign Ministry has been … in touch with foreign partners, including European, international and neighbours and will… act accordingly,” the agencies quoted the ministry as saying.
Turkey not happy with embargo on Iran oil by the US
NATO ally Turkey had made perhaps the most public case for an extension, with senior officials telling their US counterparts that Iranian oil was critical to meeting their country’s energy needs. They have also made the case that as a neighbour of Iran, Turkey cannot be expected to completely close its economy to Iranian goods. Turkey slammed the US decision, saying it would not serve regional peace and stability. Turkey “rejects unilateral sanctions and impositions on how we build our relationship with our neighbours,” Turkish Foreign Minister Mevlut Cavusoglu tweeted. “The US decision … will harm Iranian people.” The presidential spokesman and senior adviser Ibrahim Kalin told reporters in Washington, DC, that “people should not expect Turkey to turn its back on Iran just like that”. Turkey did not support US sanctions policy on Iran and did not think it would yield the desired result, Kalin said at the time, but added that Ankara would not want to violate sanctions if a waiver was not extended.”We will look for alternatives in terms of transactions and other things. We don’t want to break or violate the sanctions but at the same time we don’t want to be deprived of our right to buy oil and gas from Iran,” Kalin said last week.
China’s and others’reactions on sanctions on Iran oil imports
Geng Shuang, a Chinese Foreign Ministry spokesman, said at a daily news briefing in Beijing on Monday that it opposed unilateral US sanctions against Iran and that China’s bilateral cooperation with Iran was in accordance with the law. South Korea’s Yonhap news agency quoted the foreign ministry as saying the South Korean government had been negotiating with the US at all levels to extend the waivers and that it would continue to make every effort to reflect Seoul’s position until the May 2 deadline. In India, refiners have started a search for alternative supplies but the government declined to comment officially. Embassies of India, China and South Korea in Washington, DC, did not immediately respond to requests for comment, along with Japan, whose Prime Minister Shinzo Abe will be in the US capital on Friday for an official visit.
Implications: Oil prices rise
Oil prices rose following the Trump administration’s announcement. In morning trading on April 23, benchmark US crude surged $1.52, or 2.4 percent to $65.57 per barrel in New York. Brent crude, used to price international oils, jumped $1.84, or 2.6 percent to $73.80. Ritterbusch and Associates, an oil trading advisory firm, said in a morning note that “a complete elimination of Iranian exports is nearly impossible and that a reduction beyond current levels will likely prove limited”. It said that the overall effect “will hinge to a large degree on the Saudis’ response to what is likely to be some strong requests from the Trump administration to increase productions appreciably”.
Peter Kiernan, an energy analyst at the Economist Intelligence Unit (EIU) said: “A severe loss in (Iranian) volumes will put pressure on the supply side, given the political uncertainty currently blighting other oil exporters, such as Venezuela and Libya.” According to some analysts, ending the waivers was expected to hit Asian buyers, including China and India, the hardest. Kim Jae-kyung of the Korean Energy Economics Institute said the move “will be a problem if South Korea can’t bring in cheap Iranian condensate (for) South Korean petrochemical makers”. Takayuki Nogami, a chief economist at Japan Oil, Gas and Metals National Corporation (JOGMEC), said ending the waivers was “not a good policy for Trump”. Nogami said he expected oil prices to rise further because of US sanctions and OPEC-led supply cuts.
So far in April, Iranian exports were averaging below one million barrels per day (bpd), according to Refinitiv Eikon data and two other companies that track exports and declined to be identified. That is lower than at least 1.1 million bpd estimated for March, and down from more than 2.5 million bpd before the renewed sanctions were announced last May.