U.S. Raises Pressure on Iran With Return of Oil Sanctions
(Bloomberg) -- The U.S. reimposed sanctions on Iran’s critical oil industry Monday, raising pressure on the Islamic Republic to scale back its ballistic missile program and involvement in conflicts across the Middle East.
The sanctions on Iran’s energy, shipping and banking sectors, lifted as part of the 2015 accord to curb its nuclear enrichment, snapped back at midnight New York time. They are the second round of measures imposed on the country of 80 million since President Donald Trump withdrew from the agreement in May, saying he wanted a more comprehensive deal.
“Our objective is to force the regime into a clear choice,” Trump said in a statement released on Friday evening. “Either abandon its destructive behavior or continue down the path toward economic disaster.”
After hitting four-month highs last month on supply fears, oil prices have receded as it’s become apparent the U.S. would still grant temporary sanctions waivers to major buyers of Iranian crude.
The impact on Iran’s economy, however, is already being felt. Uncertainty over the future and a U.S. ban on dollar and gold transactions imposed in May have seen the rial fall 70 percent, sending prices soaring. Imported goods are becoming scarce, businesses are struggling and the measures have deepened political divisions, emboldening hardliners who opposed moderate President Hassan Rouhani’s grand bargain with the West.
As the measures went into force, a defiant Rouhani said his country would keep selling oil
and warned of a “war situation” as economic conditions worsen. Trump’s decision to abandon the nuclear accord, the fruit of years of negotiations involving Russia, China and European countries, has eroded trust that the wider deal Trump seeks would be respected.
“Respect your commitments, then we will talk,” Rouhani said in a meeting with economy officials, according to state-run Islamic Republic News Agency.
Bolstering the mood of defiance in a country that has faced punitive measures of some form since its 1979 revolution, Iran’s army, air force and Revolutionary Guards conducted military exercises and tested air defense systems.
On the eve of Monday’s sanctions, thousands rallied in Tehran for an annual commemoration of the 1979 takeover of the U.S. embassy, chanting “death to America” and stomping on U.S. flags. This year, oversize posters of $100 bills were also strewn on the ground for a largely conservative crowd to trample, Benjamin Franklin’s face replaced by Trump behind bars.
Oil was trading near a six-month low Monday. In addition to the waivers, OPEC has signaled it would make up any shortfall, and in October, its output jumped to its highest since 2016.
Secretary of State Michael Pompeo is scheduled to announce the list of countries that will receive waivers at 8:30 a.m. Washington time. Bloomberg reported last week that major importers of Iranian oil including India, Japan, and South Korea are among those getting waivers. China, the top purchaser of Iranian crude, is in talks for a waiver, while other requests were expected from Taiwan and Turkey.
More than 700 “individuals, entities, vessels and aircraft” will be sanctioned, according to the White House. They include Iranian banks, shipping companies and oil exporters. The U.S. has also warned that it could target the Swift financial messaging network if it doesn’t halt transactions with sanctioned Iranian financial institutions.
Treasury Secretary Steven Mnuchin on Friday said the U.S. is “intent on ensuring that global funds stop flowing to the coffers of the Iranian regime.”
While the other signatories to the accord have refused to walk away, Trump’s campaign to drive companies out of Iran appears to be working. Total SA, Boeing Co. and Munich Re are among dozens of companies that have sworn off Iran, fearing of running afoul of U.S. penalties.
European governments have struggled to come up with solutions that adequately address business concerns that doing any work in Iran will expose them to secondary sanctions, essentially freezing them out of the U.S. financial system. Iran’s oil exports already have fallen by about a million barrels a day.
The way the measures are designed mean that shipping insurers, for instance, may be unable to make payments or provide guarantees if an incident is linked to Iran. “This will most likely be the result even if the trade as such is legal and there are no blacklisted parties involved,” ship insurer Gard P&I said in an alert on its website.
Both Iran and the EU have said they will soon announce details of their plan to protect multinational companies from falling afoul of American measures.
Efforts to inflict maximum pain on Iran are also a gamble for Trump, increasing the risk of a trans-Atlantic rift.
European nations share Trump’s concern over Iranian missile tests and regional policies, including military and financial support for Syria’s Bashar al-Assad, Lebanon’s Hezbollah and the Houthi rebels fighting in Yemen’s devastating civil war. But they reason that the accord remains the most effective way to contain and monitor Iran’s nuclear activities.
The U.K. said Monday it regretted Trump’s decision and was “committed to fully supporting our trade relationship with Iran and encourage British businesses to take advantage” of trade opportunities that arise”.
©2018 Bloomberg L.P.