U.S. Issues Eight Oil Waivers Before Iran Sanctions Kick Back In
Two of those countries will reduce imports to zero but need time to get there, Pompeo said.
(Bloomberg) -- Secretary of State Michael Pompeo said the U.S. will grant eight temporary waivers for countries to keep importing Iranian crude after sanctions snap back on Monday, following President Donald Trump’s decision to quit the Iran nuclear agreement reached in 2015.
Waivers are being given only in cases where importers have made “important moves” toward shunning Iranian oil entirely, Pompeo told reporters on a conference call Friday with Treasury Secretary Steven Mnuchin. Two of those countries will reduce imports to zero but need time to get there, Pompeo said.
The decisions on waivers is part of the administration’s balancing act to get tough on Iran after Trump’s decision to back out of the nuclear deal while also trying to ensure that global oil prices don’t spike -- especially with the U.S. midterm elections just a few days away. The administration wants to punish Iran so severely that it’s compelled to negotiate a permanent end to its nuclear ambitions as well as what the U.S. calls its “malign behavior” in the region.
“Our laser-focused approach has succeeded in keeping prices stable with a benchmark Brent price right about where it was in May of 2018, when we withdrew” from the agreement between Iran and six world powers that eased sanctions in return for curbs on the Islamic Republic’s nuclear program.
But Pompeo and Mnuchin have also had to fight a rearguard action against hard-liners in the administration including John Bolton. The national security adviser argued that the waivers -- and a decision not to bar Iranian banks from the global Swift financial messaging system -- were too generous toward Iran, according to a person familiar with the administration’s internal debate.
“We are intent on ensuring that global funds stop flowing to the coffers of the Iranian regime,” Mnuchin said on the call. He said Swift would be subject to sanctions if it handles transactions with “certain designated Iranian financial institutions.”
“We have advised Swift that it must disconnect any Iranian institution that we designate as soon as technologically feasible to avoid sanctions exposure,” the Treasury secretary said.
Ahead of Friday’s call, a senior administration official said Japan, India and South Korea were among those getting waivers. China -- the leading importer of Iranian oil -- is still in discussions with the U.S. on terms, but is among the eight, according to two people familiar with the discussions who also asked not to be identified. Others could include Taiwan and Turkey.
The European Union as a whole won’t get a waiver, Pompeo said.
European Response
In a joint statement on Friday, the EU’s high commissioner and the finance and foreign ministers from the U.K., Germany and France said they “deeply regret the further re-imposition of sanctions by the United States.” They said they will work “to protect European economic operators engaged in legitimate business with Iran,” including preserving “effective financial channels” and continuing “Iran’s export of oil and gas.”
Global benchmark Brent crude has fallen about 15 percent from over $85 a barrel last month on increasing speculation that at least some nations would get waivers, as well as signs that other OPEC members will pump more to offset any supply gap.
Banks, Shipping Targets
Trump’s decision to withdraw from the nuclear agreement infuriated Iran as well as the other countries that negotiated the deal and who still say it’s the best chance to constrain the Islamic Republic’s nuclear ambitions. But the U.S. has rebuffed them and gone ahead with its sanctions plan, arguing that nations, banks and businesses worldwide will decide they’d rather do business with the U.S. than Iran.
A White House statement released Friday said more than 700 “individuals, entities, vessels and aircraft” will be sanctioned. They include Iranian banks, shipping companies and oil exporters.
“This is a whole different level of escalation than what could have occurred,” said John Smith, who left Treasury in May as a civil servant leading the unit that issues and enforces sanctions and is now a partner at the law firm Morrison & Foerster. “The message that this administration has given around the world has been uncompromisingly tough and aggressive: It’s our way or the highway.”
Inside Tensions
In addition to Bolton, officials at the Energy Department had argued that the waivers being granted were too generous and that the U.S. should bar all Iranian banks from Swift. On Thursday, Dan Brouillette, the department’s deputy secretary, sent a memo to the State Department outlining some of those arguments.
Brouillette later backed down after State Department officials assured him that the waivers were only temporary and governments getting them would be expected to keep reducing imports. On the call with reporters, Mnuchin said that while banks will be allowed to conduct humanitarian-related transactions with Iran, they “must be very careful that these are not disguised transactions.”
“There’s been a lot of tension between the White House and State and Treasury,” said Mark Dubowitz, president of the Foundation for Defense of Democracies who has advised Pompeo. “When you give a waiver you sound weak. Whereas the reality is the waiver is a feature of the sanctions, not a bug.”
Pompeo and Mnuchin said that the pressure on Iran wouldn’t stop with the waivers. As part of getting exemptions, governments will be expected to sever other economic ties with the Persian Gulf state, such as by reducing trade in goods that aren’t covered by the sanctions, according to the official.
Already, through its pressure campaign, the U.S. has managed to reduce Iran’s oil exports from 2.7 million to 1.6 million barrels a day, according to internal U.S. estimates.
Fewer Waivers
That’s symbolically important to the Trump administration because President Barack Obama’s administration took three years to remove 1.2 million barrels a day from the market -- and that was while acting in concert with the European Union and other nations before the international effort yielded the 2015 deal.
The administration’s decision on waivers also marked a significant reduction from the Obama administration, which issued such exemptions to 20 countries over three years. During the previous round of sanctions, nations were expected to cut imports by about 20 percent during each 180-day review period to get another exemption.
Countries that get waivers under the revived sanctions must pay for the oil into escrow accounts in their local currency. That means the money won’t directly go to Iran, which can only use it to buy food, medicine or other non-sanctioned goods from its crude customers. The administration sees those accounts as an important way of limiting Iranian revenue and further constraining its economy.
--With assistance from Toluse Olorunnipa.
To contact the reporters on this story: Nick Wadhams in Washington at nwadhams@bloomberg.net;Saleha Mohsin in Washington at smohsin2@bloomberg.net
To contact the editors responsible for this story: Bill Faries at wfaries@bloomberg.net, ;Alex Wayne at awayne3@bloomberg.net, Larry Liebert
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