Trump’s Iran Waivers Are Not the Concessions They Seem

(Bloomberg Opinion) -- It should be welcome news for Iran that the Trump administration has granted eight countries Significant Reduction Exemptions (SREs) from U.S. sanctions against the Islamic Republic. These allow Iran to sustain oil exports at levels higher than many analysts had predicted when Trump first announced his withdrawal from the nuclear deal in May. Iran’s exports may remain above 1.1 million barrels per day.

At first glance, it would appear that the Trump administration’s decision is merely a recognition that suppressing Iranian exports too aggressively would drive up oil prices while also compromising American diplomatic relationships worldwide. But a closer examination of the waivers suggests that the Trump administration has deployed its concessions tactically. The inclusion of China, Italy, and Greece among the waiver recipients will complicate the politics around Iran’s oil exports, and undermine the broader international effort to defy the extraterritoriality of U.S. sanctions.

With its trade war with the U.S. still raging, China’s push for a waiver — rather than an open defiance of the sanctions that the government in Tehran was hoping — points to a more cautious approach to the Islamic Republic among Chinese government and business stakeholders. The waiver request is consistent with the reports from earlier this month that Bank of Kunlun, which facilitated most of the China-Iran trade in the previous sanctions period, would cease facilitating transactions with Iranian banks. These two measures indicate Chinese authorities want to avoid adding the disagreement over Iran sanctions to their existing confrontations with the Trump administration. In a press conference on Monday, Chinese foreign ministry spokesperson Hua Chunying skirted the issue of the waiver, offering only the bromide that “China is always opposed to unilateral sanctions and long-arm jurisdiction.”

Iran is a lucrative market for China, and it is possible that, in time, Chinese authorities will find a new, more isolated banking channel to resume non-oil trade. But at least for now, the waiver — which covers financial transactions relevant to the oil purchases — could weaken Chinese resolve to find a purpose-built banking mechanism for other trade.

And what of Europe’s resolve? The inclusion of Italy and Greece were among the recipients of waivers was a surprise, because it was assumed the U.S. had rejected all European waiver requests. In a letter sent to Treasury Secretary Steve Mnuchin and Secretary of State Mike Pompeo in June, the governments of France, Germany, and the United Kingdom, along with the EU, asked for “exemptions to allow for economic relationships in key sectors,” including energy. The response from Mnuchin and Pompeo made it clear that the only carve-outs would be for humanitarian trade. During a briefing last Friday, Pompeo told reporters that the “European Union” would not be receiving a waiver.

In hindsight, Pompeo’s comment was a knowing one. The decision to grant waivers to Italy and Greece, two eurosceptic countries, looks like a deliberate attempt to undermine European unity in the response to U.S. sanctions. During his successful visit to Washington in July, Italian Prime Minister Giuseppe Conte described the U.S. and Italy as “twin countries,” united in a populist outlook. Though Italy remains a supporter of the Iran nuclear deal, in part because it has historically been among Iran’s largest European trading partners, the Italian endorsement of Trump’s views on issues like NATO and immigration may have helped earn the waiver. While Greek Prime Minister Alexis Tsipras has been a vocal critic of Trump, the two leaders held productive meetings in Washington in October 2017. Being the top European spender in NATO (on a GDP percentage basis), may also have earned Greece the Trump administration’s good graces. It is instructive that Spain, which has stuck to the EU line, was not granted a waiver, even though Spanish refiners Repsol and Cepsa — like their Italian and Greek peers — are geared to process Iranian crude. 

The waivers for Italy and Greece put the European Union — and especially the E3 of Britain, France and Italy — in an awkward position. Sustaining energy imports from Iran was a key goal of the European effort to protect the Joint Comprehensive Plan of Action, as the 2015 Iran nuclear deal is known. The EU and E3 have insisted that the proposed “special purpose vehicle,” a financial mechanism intended to facilitate trade with Iran in the face of U.S. sanctions, would include provisions for oil purchases. Now the EU is caught between welcoming waivers for some members and displeasure that the collective request was previously rejected.

The Trump administration bowed to the global oil market in issuing the waivers. But by seeking to exploit European divisions and Chinese diffidence about defying the sanctions, the administration’s concessions are not as straightforward as they seem.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Esfandyar Batmanghelidj is the founder of Bourse & Bazaar, a media company that supports business diplomacy between Europe and Iran through publishing, events and research.

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