US tries another way to pressure Iran

  • Market: Crude oil
  • 04/08/19

The US administration announced a new effort to pressure Iran as its policy of fully cutting off Iranian crude exports proves difficult to implement.

The State Department today designated Iran's paramilitary Islamic Revolutionary Guard (IRG) a "foreign terrorist organization" — a classification meant to dissuade governments and companies around the world from engaging in any commercial activities with Tehran. Washington is making the case that the newly-designated group is so entrenched in the Iranian economy that it is impossible for foreign companies to avoid dealing with IRG-affiliated entities.

The designation is meant to create additional barriers for trade with Iran, secretary of state Mike Pompeo said. "The IRG amounts to a significant piece of the Iranian economy. It is also the case that it is sometimes difficult to know if IRG is involved" in a particular company, he said. "There will be more risk involved, there will have to be more due diligence."

The group has been on the US sanctions list for decades, preventing both US and foreign companies from doing business with any IRG-affiliated entity. The key difference in the new designation is that it allows US prosecutors to bring criminal charges against any potential IRG collaborator.

The designation will give Washington an additional lever to pressure its partners abroad to ban flights by Iranian carrier Mahan Air, which the US says has ties to the IRG. The airline flies to destinations in Europe, south and east Asia and appears to have initiated direct flights to Caracas. A US official said the Iran-Venezuela air link adds urgency to the US demands to cut off links with Mahan Air.

"That is the sort of activity that we ask any country that wants to continue to have relations with the US to cast a dim eye to," the official said.

President Donald Trump "has long believed we should designate IRG in its entirety, and today we are implementing his policy," another US official said. "It is unprecedented to designate an arm of a foreign government, and it took some time to prepare." But the official acknowledged that the US could not name particular foreign companies or individuals that do business with the IRG.

The Pentagon and US intelligence agencies previously demurred on issuing the designation, noting that it would create problems for the US military forces in Iraq and elsewhere in the Middle East. They pointed out the potential of a potential backlash from Iran and the legal ramification for the US forces fighting extremist group ISIS in Iraq — alongside Tehran-backed militias.

But the US has declared victory in its operations against Isis in Syria and Iraq. A US official who provided justification for the designation ahead of its announcement said "it has undergone a robust inter-agency process so everyone can be heard."

"What endangers American troops is IRG operating with immunity," the official said.

Iranian foreign minister Mohammad Javad Zarif dismissed the designation as the US attempt to influence the outcome of the Israeli general elections tomorrow in favor of prime minister Benjamin Netanyahu. Iran's president Hassan Rohani hosted Iraqi prime minister Adel Abdul-Mahdi in Tehran, where the two governments discussed continued economic and energy sector cooperation.

US officials cast today's announcement as part of an overall "maximum pressure" policy against Iran. "We will continue to increase financial pressure and raise the costs on the Iranian regime," Trump said.

The key plank of the financial pressure campaign involves taking steps to reduce exports of oil from Iran. The six-month waivers granted by Washington to eight countries continuing to import Iranian crude expire in less than a month.

The US State Department says that three out of the eight countries no longer import crude from Iran. But preliminary Argus tracking shows that export loadings of Iranian crude and condensate rose in March for a third consecutive month, as some buyers increased purchases ahead of the expiry of US waivers.

The US administration previously said it does not plan to renew the waivers, but there are some signs of doubt about its own confidence in fulfilling its pledge. Crude prices last week were at their highest this year, as Opec and non-Opec output cuts coupled with US sanctions on Venezuela tightened global supply.

"We will make the decision on oil waivers in due course," Pompeo said. The State Department says it will make the decision known by 2 May — 180 days from the date it announced the waivers in the Federal Register.


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